Funding your dream car

It's faster, easier and cheaper than you think.

The UAE is witnessing rapid population growth, which in turn has generated an increase in demand for vehicles. Meanwhile, customers have become more sophisticated when it comes to choosing and buying a car. The purchasing power of individuals and the variety of vehicle brands available in the market offer a wide choice to customers.

However, rising prices of cars today have spawned auto loans with longer terms and alternative financing.

Too many vehicle buyers accept long financing arrangements in order to minimise their down-payment. If they decide to trade the car in the first year or so, they often find they actually owe more on their car than it's worth.

According to experts, a good rule of thumb is never to finance more than 80 per cent of the true cost (the dealer's invoice) of the car. At least 20 per cent or more should be paid in cash or the equity of your trade.

Bank representatives

All leading car dealerships in the UAE have representatives from major banks in their showrooms who offer a range of financing and insurance options to customers. Automotive loans are the most significant and visible components of retail banking in the UAE. Almost 80 per cent of the cars on the UAE roads are bank-financed, thus proving the significance and success of auto loans in the retail-banking sector.

In such a competitive environment, banks and financial institutions need both to be sensitive and responsive to changing circumstances and aspirations of their customers and their changing financial needs.

"One specialist area of HSBC is auto finance, which we provide through many of our 9,500 offices worldwide. We take into account local market trends and requirements as well as regulatory conditions, and in each country we aim to provide a tailor-made product to our customers," says Raymond O'Neil, Managing Director, HSBC Middle East Finance Company Limited (HSBC MEFCO).

Wide choice

The company is principally engaged in financial and operating leases, both on a conventional and Islamic (Murabaha vehicle finance) basis and hire purchase financing of motor vehicles. The company provides vehicle and asset finance to individuals as well as commercial companies. Finance is available to both relationship and non-relationship customers. Customers who apply for vehicle finance through HSBC MEFCO receive a free HSBC credit card for the first year and an HSBC cheque account with a minimum balance waiver.

Citibank recently launched a new programme in their auto loan product range. They offer car loans with a down payment of 25 per cent and a reducing balance rate of nine per cent. Citibank aims to provide a car loan approval within 30 minutes on a best-effort basis, taking into consideration that convenience and speed are critical.

Minimum formalities

Whether the car is new or used the RAKAuto finance option from RAKBANK provides the advantages of minimum formalities and flexible repayment periods. It also offers the option to start repaying the loan after 60 days from the finance date and the customer is entitled to a month's deferral every six months. RAKauto can also finance insurance, rust proofing, accessories, and service maintenance contracts if required. RAKauto offers on-the-spot approvals, with no down payment required. In addition, the minimum required salary starts from Dh2500, and to top it all, no salary transfer or minimum account balance is required.

As a relationship lender, Dubai Bank believes in meeting customers and interacting with them on a personal basis. Their auto loan department believes in ensuring high service level for customers and maintaining a good quality portfolio. The bank's auto finance package includes exclusive loan insurance; every eligible auto loan customer is offered a free credit card for one year which provides him or her with a range of beneficial features: (e-gate card and life insurance); takeover facility of outstanding auto loan from other banks at no charge and at a low rate of interest and free international ATM card facility.

Emirates Bank offers a host of auto loan schemes ranging from simple vanilla products to low-rate promotional offers as well as balloon finance programmes. The bank loans are highly flexible, offering customers the option of putting together their own auto loan plan that suits their requirements and repayment capabilities.

Cautious approach

Louis Scotto, General Manager, Retail Banking, Emirates Bank, has a word of caution about selecting the right partner when taking an auto loan, "Customers must look closely at hidden costs which may be associated with auto loan plans. In their quest to attract more customers, several banks are lowering their rates. However, in the fine print on the contract, service/file charges are incorporated to compensate for the loss of income due to lower interest rates."

A customer must also look into after-sales service while opting for a loan as some banks will offer a low rate of interest for which they compensate by setting very high rates on after-sales charges such as cheque-bouncing penalties and closure charges.

Unique benefits

According to Owen Belman, Consumer Banking Head, UAE and Oman, Standard Chartered Bank, the unique benefits to the customers are that the bank's auto loans are convenient and accessible, they are speedy and require minimal paperwork, "We offer competitive interest rates and there are no hidden charges. We are also offering the extended warranty and insurance products through our partners as well as our own host of products such as refinance and the Standard Chartered Islamic auto finance," he says.