To purchase a car is going to become easier than before, when 100 percent financing was as easily available on new car purchases as withdrawing money from the ATM.
Steve Faulkner, Managing Director at Al-Futtaim Finance, illustrates this point: “Al-Futtaim Group has a consumer finance license, this allows Al-Futtaim to provide a consumer personal loan along with the automotive loan as part of our complete service solution.
“This solution enables customers to pay off the 20 per cent down payment via installments. This is a regulated solution and meets all elements of the Central Bank’s regulations introduced almost two years back.”
This method applies to all models within its portfolio; this means that the financing package does not differentiate between someone who wants to spend more than AED200,000 on a Landcruiser with another who is scouting around for an entry-level Yaris from AED51,000.
“If the customer is a resident of the UAE or a UAE national with a clean banking record and a valid residency, he should be able to avail of a car loan through our company within a matter of few days,” said Faulkner. “We simplified the loan application process by taking all credit application documents from them and passing on to one of our 14 partner banks. This prevents customer from having to visit multiple banks to apply for an auto loan.”
Practically speaking, a buyer availing of a full financing facility is taking on two components – one is the straight 80 per cent related to the car deal and the other 20 per cent as a personal loan in lieu of the equity he is supposed to be putting down.
The two loan exposures, obviously, will carry different interest rates. But in a low rate environment and with automotive sales growing at 20 per cent plus, any dealership that can extend 100 per cent financing will find that getting prospects on board isn’t too much of a sweat.
“There has never been a better time to purchase a new vehicle — UAE banks are very well-funded and have a huge appetite for automotive lending,” said Mark Kass, regional managing director at Al-Futtaim Honda.
“With loan losses at the lowest level in many years and coupled with the security of a mortgage in favour of the bank, we are seeing great consumer rates starting from 2.99 per cent. This is not due to a slowdown in the automotive sales arena, on the contrary, banks are competing to win the greatest share of a growing market.”
“Post the changes in [Central Bank] regulations, we witnessed an increasing number of customers walking into our showrooms and making a down payment via credit cards, which further worsened their financial situation,” said Faulkner. “Our solutions help guide customers away from paying via a credit card, explaining the impact this may have on their monthly outgoings.
“We provided them with an alternative solution that fitted their needs by offering them a personal loan at a lesser interest rate. However, we made sure that their monthly repayments for the down payment loan and car loan were linked to ensure debt burden ratios as set by the Central Bank were not breached.”
But this is where an Al-Futtaim Motors has an advantage given that the Group also operates a consumer finance operations. Not having one would preclude dealerships which do not have such a facet to their group portfolio.
“There is a definite advantage that these dealerships have over the rest of us in bypassing the 20 per cent down payment criteria,” said a general manager with a leading auto brand importer. “But this is a car market with a definite momentum behind it that most new car buyers have already factored in their down payment requirements.
“Of course there will be certain instances when a buyer is comparing like for like models and go with a dealership offering 100 per cent financing. But in a market growing at 20 per cent plus, there is room for all dealerships to grow.”
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