Getting a car loan not that easy any more

Dubai: Not too long ago, getting a loan for a brand new car was almost as easy as showing up and doing some paperwork. Banks in the UAE, flush with liquidity then, was not wary about extending loans to just about anyone making a decent living.

Those days are gone. Some banks in the country have tightened lending conditions after which a lot of people no longer qualify for an auto loan. As cash becomes more difficult to obtain, residents turn to car rental companies for help.

"When the crisis first struck, the car leasing business had a windfall. We saw many people resorting to car rental as banks stopped extending loans," says Norvie Pedreno, a team leader at Diamondlease Car Rental in Dubai.

Some banks have increased the minimum salary requirement for vehicle loans by as much as 100 per cent. Emirates Bank no longer grants auto loans to applicants earning below Dh5,000. Residents making Dh3,000 a month used to qualify for the same loan.

At HSBC, the increase was far more significant. A minimum salary of Dh20,000 is now required to qualify for a vehicle loan. This is up from Dh10,000 in November, 2008.

The bank also no longer accepts loan applications from "non-relationship customers."

"We take our responsibilities to prudent lending very seriously, for the sake of our customers, and for the long-term sustainability of our business," Sean Drury, managing director for HSBC Middle East tells Gulf News.

"In line with current market conditions, HSBC has further tightened its lending criteria in order to ensure that customers who do receive loans can afford to repay them at a time of considerable uncertainty around the world," Drury adds.

However, some banks in the UAE maintain that their lending conditions remain relatively unchanged. Minimum salary requirements in other banks are still low and no down payments are often required.

Prevailing interest rates on auto financing range from 4.5 per cent to 4.99 per cent. Certain banks offer loan tenures up to 72 months and financing up to Dh400,000.

At Abu Dhabi Islamic Bank, customers can secure funding for the purchase of a new car at 4.5 per cent to 4.75 per cent annual interest rate. A minimum salary of Dh3,000 is required for account holders and Dh4,000 for those who don't have an account with the bank.

While banks' credit rules are generally tight, car dealers in the UAE are dangling some promotions to stimulate consumer spending in time for the Dubai Shopping Festival (DSF). Some car dealers promise to craft some "tailor-made" packages for car purchases.

Arabian Automobiles is offering free insurance on select models, cash prizes up to Dh5,000, a chance to win four Nissan Qashqais and entry into "DSF Nissan a day" raffle.

At Al Futtaim, Senior sales executive Hussain Atef Ebrahim says they are offering a new payback system, whereby if a car gets stolen, the auto dealer covers the resultant amount paid by the insurance company.

-With additional inputs from Aine Moorad, Staff Reporter.