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If you have family in the UAE, having a car can help save collective costs of bus fees, work transport etc. Image Credit: Shutterstock

How will getting a car save me money?

Saving money by arranging one’s own car depends on individual situations.

If your workplace is close to the Metro and you have found affordable accommodation close to a train station in Dubai, it might make best sense to just take the train to work and elsewhere. However, you may have to spend on cab fare to get to places that are not near a Metro station. In some cases, it might be cheaper to travel by car than by public transport.

If you have family in the UAE, having a car can help save collective costs of bus fees, work transport etc. Having your own transport option can also save you rent as houses close to Metro stations are considerably more expensive. Just two kilometres or so away can get you savings of up to Dh5,000 in annual rent, or you could find bigger homes for the current rent.

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If you decide to use a car, there are three options to consider: buying, leasing or renting.

Why car enthusiasts would love the UAE

Compared to many countries, it is very easy to drive your dream car in the UAE.

While availability and good roads add to the appeal, a tax-free income, easy car loan process and access to used luxury cars are factors that make owning a car appealing to many UAE residents. Even if one can’t afford to buy the car, there are many rental options from low-budget to luxury cars available. Renting a luxury car is more of a tourist thing in the UAE while residents may prefer leasing high-budget cars instead of renting or owning them

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Buying a car

Getting your own car comes with a lot of convenience as well as costs. While a car is an asset, it is a depreciating one which requires insurance, registration, annual tests, maintenance and repair with time. Not to mention additional costs in case of an accident if not covered by insurance. For a car purchase, you have to pay 20 per cent of the value as down payment while the rest can be covered by a car loan.

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Value of down payment while taking a car loan

If you are only looking for a simple vehicle to go from point A to B and want to save money, you could decide to get a second-hand car that matches your requirements. The UAE has a lot of websites that could help in choosing a good second hand car.

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Insurance

Insurance companies factor in your age, age of your UAE driver’s licence, accident/fine history, gender, type of vehicle and age of vehicle before giving you an insurance rate. For example, if you get the car within the first year of getting your driver’s licence, insurance premium can go up by as much as 25 per cent of the original amount. If you get into an accident, premium can go up. At the same time, if you get an SUV, there is an applicable 10 per cent discount on premium given by some firms in the first year. The rates depend on the car, your insurance provider and your driving history.

Insurance is either comprehensive (covers your car, vehicles involved, injuries to yourself and theft) or third-party which covers your injury or death and damage to other vehicles involved. The latter does not cover damage to your car. You can choose to have additional coverage, such as passenger coverage, for an extra amount.

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When choosing an insurance policy, your type of car and the availability of spare parts or ease of maintenance should be factored in. Image Credit: Stock photo

The UAE’s Insurance Authority releases maximum and minimum rates applicable to car insurance periodically. In 2017, the authority set the maximum insurance rate for sedans (or salon cars) at 5 per cent of the value and 7 per cent for four-wheel drive vehicles.

When choosing an insurance policy, your type of car and the availability of spare parts or ease of maintenance should be factored in. This is critical if you don’t want ‘agency repair’ or repair from the manufacturer, which could be expensive outside of warranty.

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Prices and monthly financial burden

For ease of calculation and comparison in the table, we have assumed the following:

  • The car value is taken as a total figure inclusive of down payment at 20 per cent.
  • The prices are of base models only for 2020 and monthly installments are considered to be consistent.
  • Insurance rates are applied at an industry average of 2.75 per cent to 3.75 per cent based on price. This can go as high as 5 per cent for sedans and 7 per cent for SUVs.
  • The payment is assumed to be for 5 years and fuel prices, Salik are not included in the monthly rate.
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Image Credit: Gulf News
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Image Credit: Gulf News

Buying second-hand: Pre-owned car checklist

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Verified dealers of pre-owned vehicles can help in arranging a bank loan. Image Credit: Gulf News archives

• Check both verified dealers and online sale platforms for the best deals. Verified dealers selling certified pre-owned cars may charge higher amounts while owners selling cars online charge comparatively lower.

• Decide on your filters for search: Total kilometres, within warranty period, single or multiple owners, female owner, accident history, etc., can pull the price up or down as the case maybe.

• Once you decide on a brand or a model, check brand new cars as well. Certain companies may have special rates for Ramadan, Eid, etc., if you can afford to wait.

• Get a car report made for your final selection, which will show if the car has had any accidents or extensive repair that could affect your ownership and/or insurance. RTA has an online platform for this and charges Dh120 per report.

• Verified dealers of pre-owned vehicles can help in bank loan arrangement while buying directly from the owner means you have to set up the loan process or come up with cash to make one-time payment.

For the second-hand rates, the average prices are shown for models from 2016-2018. This can be lower or higher based on mileage, warranty, features, etc.

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Image Credit: Supplied

Advantages of buying

  • It is your own car, an asset which you could choose to sell in case of need.
  • There are no distance restrictions on your usage.
  • Ease of car loan and availability of options can help you get a vehicle suitable to your needs and budget.

Disadvantages

  • Many people may not have the 20 per cent down payment ready for payment – some dealers have an assist option for this which may drive up loan rates
  • All costs and liabilities are on you in all situations
  • In case you need to leave suddenly, selling the car at a reasonable price could be a hassle
  • You still pay the monthly amounts even if you don’t use the car
  • A second-hand car comes with risks that can drive up your service and maintenance costs

Renting a car

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Usually the car rental on a monthly basis is much higher than monthly payments for your own car. Image Credit: Gulf News archives

Many people choose to rent cars in the UAE on a monthly basis. The renting process can save a lot of headache in terms of insurance, registration, maintenance and service but can be more expensive than owning one’s own car. Another advantage is the ease of getting to try a new vehicle or model with no qualms about long-term expenses or resale value.

At the end of the rental period, the car is checked for any damage which could be deducted from the deposit amount, which puts some pressure on the customer.

Usually the car rental on a monthly basis is much higher than monthly payments for your own car. Some rentals also come with distance restrictions, for example if you go above 2,500 kms in the month, you have to pay an extra amount per kilometre over the limit.

However, the definite advantage come in when you need to leave town on short notice or if you don’t want to get committed to ownership of a car in the UAE. Resale, registration, annual tests, service – none of it would be your concern if it was a rental.

We compiled a list of cars and their monthly rents available at the time of publishing.

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Image Credit: Gulf News

As you can see from the table, the rental may cost the customer up to double the payments made on a monthly basis for your own car. Most rental companies may block an amount on the credit card as security and ask for one month’s rent in advance. You could get a lower rate or a higher rate depending on your rental company’s profile, age of car, insurance policy, car history etc.

Advantages of renting 

  • No pressure of registration, insurance or maintenance
  • Ability to switch up your vehicle on a whim
  • Choose not to pay anything when you’re not using the car by planning the return of the vehicle as required
  • Free delivery on most monthly rentals

Disadvantages

  • Comparatively more expensive
  • Pressure to keep the car free from even minor damages which could affect your security deposit
  • Salik charge is Dh5 per pass instead of the regular Dh4
  • No asset to your name but end up paying more for renting than for buying

Leasing a car

Any rental 12 months or above is considered a lease and is more time and cost-efficient for many residents. These contracts could be cheaper than monthly rental as it is for a longer period of time. This kind of contract also may come with a distance restriction and additional payment for crossing the restriction.

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There is a definite advantage in leasing a car in terms of cost, especially if you like to switch cars up yearly. Image Credit: Bloomberg

A Toyota RAV 4 leased for two years with a 20,000 km restriction would cost Dh1,780 per month inclusive of lease benefits such as insurance, no registration, routine service, etc. As per our purchase table, a RAV 4 would cost you Dh1,751 per month (just Dh30 lower). For a Toyota Corolla with the same conditions, lease price is around Dh1,400 per month, similar to the monthly payment if you were to buy the car (Dh1,423 per month). The purchase price for your own car, however, is not inclusive of registration, service, annual tests etc., which are required for owners.

There is, therefore, a definite advantage in leasing in terms of cost, especially if you like to switch cars up yearly or if you don’t want to be burdened with ownership and resultant costs.

Advantages of leasing

  • Comparatively equally priced as owning a car
  • No burdens of insurance, registration, routine service or maintenance
  • Free delivery by most companies
  • Ease of driving your dream car without the liabilities of owning one
  • Because of the longer lease, up to 3 years for some brands, it is like owning your own car.

Disadvantages

  • You pay almost as much as the price for buying the car but have no asset to sell or recoup value
  • There is a longer contract period involved, so it is not as easy to break the contract
  • There is no investment value

Verdict

Speaking pure economics, a second-hand car not more than two years old and with low mileage is a great option to help avoid depreciation costs of buying a new car.

Speaking pure car-lover language, leasing cars is a great option if you can afford it as it is only as costly as buying a brand new car with no major strings attached. For long-term use, renting monthly is not a good option but can come in handy for any transitional phase before getting your own car or lease.

If you intend to stay in the UAE for more than 10 years and know the car you love and want long-term based on your usage, get a brand new car.

As per our research, the final verdict is up to each individual and his or her personal desires or needs when it comes to ownership of a vehicle.