As demand eases, UAE car dealers, banks woo buyers with '0% interest' finance - and gold too

Dubai: Buying a car has never been easier in the UAE, with dealerships and banks rushing to offer subsidized auto finance rates, even those coming at an eye-catching ‘0 per cent rate’ on select models for limited time promotions.

Car dealerships are starting to stretch warranty periods beyond the usual 3 years, while some are even offering gold as an added incentive. (In fact, gold coin offers are becoming standard in promotions across the board, whether it’s buying a home or a car. The UAE gold rate for 22K is at a healthy Dh261.75 a gram early today.)

But most car buyers will be looking closely at the auto finance rates available in the market. All hopes of a cut in interest rates by the US Federal Reserve in the first-half of 2024 never materialized, and that’s been a huge disappointment for prospective car buyers as new model prices have seen significant increases in the recent past.

The average auto loan rates for first-time buyers in the UAE have risen to 2.5-2.75 per cent. According to dealers, a sizeable number – around 20 per cent on average – planning to buy a car are new residents in the country and who have decided to invest in a new car.

This is why any promotion with 0 per cent or thereabouts comes across as a significant relief for those who have plans to buy now. One of the leading banks in the UAE recently was offering just that on an EV purchase, at 0 per cent for ‘up to 5 years’. The bank was also allowing the first payments to be made at the end of 120 days.

“Most UAE banks will continue to stick with the current flat rate schemes of 2.5 per cent to 3 per cent,” said Bhavik Mehta, Deputy Head of Research – Investment Products at Century Financial.

“For car buyers, the main advantage would come in the form of additional benefits. These include freebies and tactical promotion services like on-site assistance, better first-year insurance coverage options, etc.

“These additional benefits enhance the perceived value of the auto purchase for consumers.”

Difficult two months

Dealerships are hoping to get back into the groove when it comes to new car sales in the coming weeks. April and May proved a fairly difficult period, especially after motor insurance premiums spiked after the rains.

“June too was relatively quiet and now there is the long stretch of summer that we need to deal with,” said a top official at a dealership. “The cost of ownership is again proving a concern with many potential buyers, and mostly to do with motor insurance.”

It’s a fact that premiums have risen by well over 10 per cent across models – and irrespective of whether the owner has had claims over the past 12 months of the earlier policy coverage.

Car prices are not dropping

By and large, new car prices in the UAE have not seen any significant drops. In fact, ex-showroom prices have seen increases in each of the last 3 years, dealers say, from various reasons, starting with production and shipment delays after the Covid strike. The last year, the Red Sea shipping crisis came to the fore impacting on landed costs, and a strong dollar has also played its part.

Add to that the increased insurance premium and the higher auto finance rates, car buyers clearly have to shell out more. This is why there is the increased emphasis on helping them manage part of the higher costs. Any upcoming cut to US interest rates and this being reflected here will help.

But buyers should not raise their hopes too high. “Even when we see a sharp drop in core banking interest rates, banks are unlikely to provide massive relief to buyers," said Mehta. "This is based on the overall auto ownership and lending structure over the years."