Buying a car made easier
From Shariah-compliant to comprehensive products, there is a wealth of choice in the auto finance sector
The auto loans and insurance market in the UAE is extremely well developed with many players and products to choose from, and prospective car buyers looking for either a new car or a used vehicle should take time out to review their options.
While car dealerships will most likely make some recommendations for loans and insurance, it is in consumers' interest to take the time to figure out eligibility and documentation requirements, and then review the benefits and features on offer. Given such a competitive environment — up to 80 per cent of about 230,000 cars sold each year are done through financing, market sources told Gulf News for an earlier report — banks and other financial institutions are getting really creative and going beyond giving the usual discounts to convince potential clients.
New regulations
For instance, Emirates NBD has introduced a unique auto loan that is backed by a client's fixed deposits. With this auto loan variant, car buyers can now save on their vehicle's depreciation cost by converting the down payment into a profitable fixed deposit, thus transforming a depreciating car into a return yielding asset.
Enticing new propositions have also been recently introduced, perhaps as a result of the economic downturn, such as a no-down-payment option being offered by most banks as they rush to maximise lending before new Central Bank regulations come into force.
The regulations — which, as reported earlier, are likely to come into effect today — require car buyers to put down 20 per cent of the total price before a loan is okayed. Which means lenders are going to be forced to offer more creative deals.
"It will be more of a challenge [to buy a car] for a lot of people with a lot less cash available," Felix Welch, Director of Sales and Marketing at Arabian Automobiles, dealers of Nissan, Renault and Infiniti, told the Xpress newspaper earlier this month. "With charges now more transparent, it will lead to more competition and customers will be the biggest winners."
However, further hurdles could await consumers. In addition to interest payments, there may exist additional fees associated with repayments or loan arrangements. It always helps to ask questions, and look out for the agent that lays out the fine print early on.
Review the cover
As for insurance, just like car loans, it is important to get to know the benefits and features of the insurance being offered to you. "The amount you save on a quotation may turn out to be a false economy when you have to make a claim. Customers should always review the level of cover and service being offered, in addition to the financial standing and brand values of the insurer providing the policy," says Karl Gray, Director of Personal Lines, RSA Insurance Middle East.
The UAE's Ministry of Economy has stipulated the basic covers for its policyholders, which usually include extended liability cover, two years guaranteed agency repair, optional hire car costs, protected no-claims discount, personal accident cover as well as GCC cover.
Insurance providers do provide variants of comprehensive coverage, to either include more benefits and features or target specific vehicles such as luxury or sports cars.
AXA Insurance Gulf's Comprehensive Executive insurance, for instance, offers five years agency repair, GCC cover, protected no-claims, personal accident benefit to the driver and passenger and an AXA replacement car, among other key benefits.
"This is normally only available to drivers with a full no-claims discount," says Alexis de Beauregard, Chief Office, Marketing and Retail Product Offering, AXA Insurance Gulf.
"When shopping around for an insurance policy, think about more than just the price. Not all insurance companies are the same and some may offer higher limits than others. Make sure you know what you want," says Beauregard.
Islamic banks
Shariah-compliant auto finance is offered mostly by Islamic banks or independent insurance providers such as the Islamic Arab Insurance Company (Salama) and Dubai Islamic Insurance & Reinsurance Company (Aman), but international institutions such as HSBC have also clambered aboard in recent times.
But whatever you decide, don't feel obliged to accept the insurance offered to you at the car showroom. At the very least take time to investigate the type of cover being offered as well as the company who is providing the cover. n
What to look out for while you go auto loan shopping
- Limits — Most banks provide loans to cover the cost of the vehicle; others have fixed limits, such as Dh250,000. This will depend on your ability to pay or an existing relationship with the bank. As a preferred or priority client, limits can be raised as high as Dh500,000.
- Interest rates — They are usually fixed, although some do offer reducing interest depending on the loan tenure. In the UAE, the interest rates start at 3.99 per cent per month.
- Time period — Repayment periods vary. Some banks offer a minimum of 12 up to 60 months. Some banks are known to grant certain clients up to 72 months of loan tenure.
- Account details — Banks will also offer either free current accounts or credit cards along with the car loan.
