Buying a car involves more than just picking the right color, make and model or knowing how fast the engine goes. Whether new or secondhand, a vehicle is a major purchase that requires some careful thought and understanding the financing options will determine your monthly outlay.
For example, a AED 100,000 car financed through a three-year loan of AED 80,000 at a rate of 2.99 percent, will require a monthly payment of AED 2,326. This will also generate a total interest of AED 3,741 on the outstanding loan.
Take the same loan at a rate of 4.5 percent and the payment will reach around AED 2,379 per month. While this may only be about AED 50 more than the previous monthly calculation, it piles up an extra AED 1,800 over the course of three years - something worth thinking about.
However, it is not as simple as going for the cheapest rate. Car loans with low interest may have certain conditions such as a minimum salary range or a requirement to transfer your salary to the bank providing the loan. HSBC, for instance, currently offers the lowest flat rate in the market at 2.25 percent, but applicants must have a minimum salary of AED 7,500 a month, which has to be transferred to the bank.
Another factor to be considered is whether or not you have the funds to pay for the deposit. As per the UAE Central Bank's policy, car buyers are required to make a 20 percent down payment, which means you would need to pay AED 20,000 upfront for a car worth AED 100,000.
Fret not, however, as there are other options available such as Abu Dhabi Islamic Bank's (ADIB) Car Ijarah product, which requires a zero percent down payment that could potentially be a saving grace if immediate funds are scarce.
Other points of interest
Some loans may also charge an arrangement fee - typically one percent - while others may have a fixed fee of AED 500. Loans with lower rates may also come with fixed repayment periods, which may cost you more than a loan with a higher rate that you can pay back over a shorter period.
When comparing car loans in the UAE, consider whether they are flat or reducing rates, which can oftentimes be misleading. Read more about the difference between reducing and flat rates
Simply put, you must do your homework and compare the different car loans in the UAE before you make your decision. Aside from considering the bank's documentary requirements, make sure to add up all the costs incurred including loan amount, interest rate, arrangement fee and early settlement fee.
More importantly, the first thing you should do is recognize what your budget is and how much you can realistically afford every month. Next is to pick a car that fits the budget and then find the most suitable finance deal.
Also remember that some banks only lend to reputable companies, so you may be asked to stump up a higher deposit - as much as a third of the value of the car - if they are unfamiliar with your employer.
The next time you walk into your nearest car dealership, you will be directed to a row of desks where busy salesmen are waiting to market their finance deal. Do not be distracted by the shiny new motor in front of you and eagerly sign on the dotted line.
Research and do your homework to ensure that you have indeed secured the best loan that fits your budget. It may delay you getting your hands on the steering wheel of your dream car, but it will be surely worth the wait.
Ambareen Musa is the chief executive of Souqalmal.com, a website that allows consumers to search and compare over 1,000 products online from credit cards and loans to mortgages and school fees.
souqalmal.com 2013
