Dubai: Buying a car is getting to be a lot easier. But is it heading back to that point in time before May 1, 2011 when 100 per cent financing was as easily available on new car purchases as taking money out of the neighbourhood ATM?
Well, it depends on which model you have plans for and who is selling it. Select dealerships in town are once again spreading the word on 100 per cent financing available through them… but with caveats attached.
But the key point is that someone who wants to buy a car can do so without having to put up the 20 per cent down payment mandated by the Central Bank since May 2011. He or she only needs to know where to look. Let’s head down to the Al-Futtaim Motors showroom for a fact-check.
Steve Faulkner, managing director at Al-Futtaim Finance, explains how: “Al-Futtaim Group has a consumer finance license, this allows Al-Futtaim to provide a consumer personal loan along with the automotive loan as part of our complete service solution.
“This solution enables customers to pay off the 20 per cent down payment via instalments. This is a regulated solution and meets all elements of the Central Bank’s regulations introduced almost two years back.”
This applies to all models within its portfolio; in other words the financing package does not differentiate between someone who wants to spend more than Dh200,000 on a Landcruiser with another who is scouting around for an entry-level Yaris from Dh51,000.
“If the customer is a resident of the UAE or a UAE national with a clean banking record and a valid residency, he should be able to avail of a car loan through our company within a matter of few days,” said Faulkner. “We simplified the loan application process by taking all credit application documents from them and passing on to one of our 14 partner banks. This prevents customer from having to visit multiple banks to apply for an auto loan.”
Another dealership, Arabian Automobiles Co., has had its 100 per cent finance plan running for a few months now. “This finance product delivers exactly what its name implies and incorporates benefits that make us confident it will continue to be in demand,” said a spokesperson for the Nissan dealership.
In effect, a buyer availing of a full financing facility is taking on two components – one is the straight 80 per cent related to the car deal and the other 20 per cent as a personal loan in lieu of the equity he is supposed to be putting down.
The two loan exposures, obviously, will carry different interest rates. But in a low rate environment and with automotive sales growing at 20 per cent plus, any dealership that can extend 100 per cent financing will find that getting prospects on board isn’t too much of a sweat.
“There has never been a better time to purchase a new vehicle — UAE banks are very well-funded and have a huge appetite for automotive lending,” said Mark Kass, regional managing director at Al-Futtaim Honda.
“With loan losses at the lowest level in many years and coupled with the security of a mortgage in favour of the bank, we are seeing great consumer rates starting from 2.99 per cent. This is not due to a slowdown in the automotive sales arena, on the contrary, banks are competing to win the greatest share of a growing market.”
A valid observation, this one. “Interest rates will remain at lower levels for the foreseeable future - there has never been a better time on the borrowing interest level,” said Mustafa Vazayil, managing director at Gargash Insurance Services. “Banks are flush with funds and need to deploy them, however there will be provisos on 100 per cent financing - there is never a free lunch.”
Going by anecdotal feedback, the UAE continues to record a surge in newly minted residents. And as any dealership will tell you, any new entrant to the white-collar workforce is immediately a prospect when it comes to buying a car.
But with the 20 per cent down payment requirement, it delayed their purchase decisions and particularly in the higher end of the model spectrum. With the option of 100 per cent financing available, albeit with select dealerships, these newcomers have an opportunity to get into the swing of things earlier.
Auto dealerships who are offering 100 per cent financing also make a point of emphasising that their move reduces the scope of new car owners maxing up on their credit cards to pay off the 20 per cent equity. (Interest rates on credit card outstanding tend to be steep…)
“Post the changes in [Central Bank] regulations, we witnessed an increasing number of customers walking into our showrooms and making a down payment via credit cards, which further worsened their financial situation,” said Faulkner. “Our solutions help guide customers away from paying via a credit card, explaining the impact this may have on their monthly outgoings.
“We provided them with an alternative solution that fitted their needs by offering them a personal loan at a lesser interest rate. However, we made sure that their monthly repayments for the down payment loan and car loan were linked to ensure debt burden ratios as set by the Central Bank were not breached.”
So, will other dealerships follow suit? If given the chance they would immediately snap at such an opportunity.
But this is where an Al-Futtaim Motors has an advantage given that the Group also operates a consumer finance operations. Not having one would preclude dealerships which do not have such a facet to their group portfolio.
“There is a definite advantage that these dealerships have over the rest of us in bypassing the 20 per cent down payment criteria,” said a general manager with a leading auto brand importer. “But this is a car market with a definite momentum behind it that most new car buyers have already factored in their down payment requirements.
“Of course there will be certain instances when a buyer is comparing like for like models and go with a dealership offering 100 per cent financing. But in a market growing at 20 per cent plus, there is room for all dealerships to grow.”