Attractive auto finance options and easy credit access are encouraging buyers in the UAE to invest in new vehicles or upgrade to luxury models. Taking the growth rate of the automobile market into consideration, it is anticipated that the car finance market in the UAE will record a healthy growth over the next few years.
Growing volumes
If recent statistics are anything to go by, the UAE automotive market appears attractive to buyers. According to IHS, a global information company, the sale of cars in the UAE is expected to hit close to 366,000 units by the end of this year, which indicates a growth of 8.2 per cent compared to 2013. Michel Jacinto, senior EMEA automotive sales forecasts analyst, IHS, says, “After two consecutive years with an average growth of 19.5 per cent, we forecast a slow growth this year. The auto finance market will continue to benefit from a growing volume of cars. Unlike European markets, the automotive market in the GCC is less dependent on credit purchases. However, middle-class customers are looking for credit loans to buy new cars.”
Financial institutions in the UAE are also upbeat about the health of the auto finance industry. Supported by a buoyant economy, rising employment opportunities, growing consumer spending, and lower petrol prices, the sector is poised for sustained growth. Exciting new launches as well as a growing portfolio of pre-owned vehicles will also lead to a surge in demand for cars and auto loans.
Andy Ripley, HSBC Head of Retail Banking and Wealth Management, UAE, says, “We foresee the auto finance market to grow at a steady pace in the coming years. Passenger car registrations in the UAE are forecasted to rise to 10.2 per cent a year between 2013 and 2017, according to the Economist Intelligence Unit. This will play a significant role in driving up demand for a variety of loan products.”
The auto finance segment in the UAE has emerged as one of the few sectors drawing a significant share of bank finance. According to the UAE Central Bank regulations, the amount of the loan cannot exceed 80 per cent of the value of the car and it should be paid back over a maximum period of 60 months.
Jacinto says, “Stricter banking rules were introduced to limit the impact of the financial crisis on national banks. It impacted sales for a few months. Carmakers then established their financing services arms for automobile loans to support their car sales. Higher competition pushed banks and original equipment manufacturers’ (OEMs) financial departments to be less severe regarding loan acceptations.”
“The primary factor affecting the growth of the auto finance industry is the absence of an established credit bureau, which is likely to be resolved in the near future,” says Shehzad Hameed, General Manager, Retail Banking Products for Middle East, North Africa and Pakistan, Standard Chartered Bank. “Banks will then be able to make a more informed decision while extending facilities,” he says.
Consumers in the UAE have a large choice in terms of automobile brands and schemes from car manufacturers, dealers as well as financial institutions. “Against this backdrop, there is a strong price competition among banks. Margins on auto loans are relatively lower when compared to other loans,” says R. Sivaram, Head of Retail Assets and Cards Business, Emirates NBD.
Whether a borrower wants to buy a new car or a pre-owned vehicle or plans to transfer his existing loan, banks in the UAE have solutions for all. Experts say that now is a good time for car buyers, as financial institutions are offering attractive packages to woo customers.
HSBC offers its clients flexible repayment options from 12 to 60 months, along with fast and easy approvals and it doesn’t require transfers of salaries. “The bank also provides access to a range of insurance policies via multiple platforms,” says Ripley. With a maximum loan amount of Dh918,000 and a 20 per cent down payment, HSBC’s interest rates start from 2.49 per cent per year.
Sharia-compliant options
Emirates NBD offers customers both conventional as well as Sharia-compliant auto financing options with many value-added benefits. These include fast loan approvals within half a day, flexible payment options in terms of conventional monthly instalments, staggered payment plans or guaranteed buy-back options. It also offers Auto Protect credit life insurance, free bank account with access to its network of branches and ATMs and a choice from a bouquet of credit cards with preferential fees. In addition to auto finance for individuals, Emirates NBD also offers business vehicle loans to entities operating in both transport and non-transport sectors.
Last year, Emirates NBD signed a partnership agreement with Porsche Services Middle East and Africa FZE, a wholly owned subsidiary of Porsche Financial Services GmbH, to jointly offer financial solutions to buyers for new and pre-owned Audi, Porsche and Volkswagen vehicles, all of which are manufactured by the Volkswagen Group.
“This year, Emirates NBD will continue to offer its customers special promotions across many brands and automotive dealerships. We will leverage our strategic partnerships across multiple dealerships to offer interest-free loans, deferred payment options and value-added offers,” says Sivaram.
Mashreq Bank offers options for car refinance under conventional loans in the UAE. Its Islamic auto finance product is structured on murabaha in which bank first buys the vehicle and then sells it to the client at a mutually agreed profit on deferred basis.
“Currently, Mashreq Bank runs an ongoing special bundled product offers for an auto loan, which includes a platinum elite credit card that is free for the first year, free overdraft facility for the first year, free current account, competitive auto insurance rates and 4,500 Salaam Rewards points per Dh10,000 of loan,” says Tooran Asif, Head of Personal Banking, Mashreq Bank. A buyer can borrow up to Dh500,000 and the flat rate of interest is 2.35 per cent per year, while the reducing rate is 4.31 per cent per year.
Al Hilal Bank offers only Sharia-compliant auto financing in the UAE for new and used vehicles. It ran 16 promotions last year. Earlier this year, it has already rolled out two promotions, which have been very successful. Al Hilal Bank has given its customers the opportunity to drive home their dream cars at 0 per cent profit for the finance tenor.
ADIB recently launched its spring campaign with Bin Hamoodah Automobiles, Liberty and Ghandi. The campaign is aimed to facilitate car financing for a number of car brands including Chevrolet, MINI Cooper and BMW. Customers who choose a 6 or 7 series BMW or a MINI will receive a financing rate of 0 per cent for 36 months. Buyers of a 2014 model Chevrolet need only begin payments after three months and at 0 per cent profit rate for the first year.
