How to be smart with money when buying your next car

Need a car but don’t have the cash? A car loan can be a valuable tool – but don’t forget to do your homework before signing on the dotted line.

Buying a car is no easy decision. While many of us spend time looking for the best model, it is equally, if not more, important to think hard about how you’re going to finance your ride.

The truth is, most buyers don’t have the cash to pay outright. This is where the option of obtaining a car loan comes in.

A car loan is a type of mortgage given by a bank or third party lender to enable someone to purchase a vehicle.

Like any loan, the deal comes with conditions, including a down payment and corresponding interest rate.

Here in the UAE, car loans processed through banks are the most popular option. Although procedures are fairly straightforward, it is still best to ask for an expert opinion to make the whole procedure less stressful.

We seek the help of Matthew Davidson, head of motor services at Dubizzle Motors,
to help us understand how car financing is done in the UAE.

Getting started

If you are buying a pre-owned car, then most banks will allow financing on cars up to eight years old, meaning that if you find a five-year-old car, you should be able to finance for three years, while newer cars can be financed for up to five years.

As per UAE law, the bank can only finance 80 percent of the car’s value, whether it is new or second-hand. The remaining 20 percent you will have to provide yourself.

The bank will require an evaluation certificate from its list of approved evaluators – this is the value the loan will be calculated on. For example, for a car valued at AED 100,000, you can receive a bank loan of AED 80,000.

Interest rates

The market is very competitive now and, in most cases, you do not need to bank with a chosen lender or even transfer your salary, so shop around and get quotes from different banks to find the most suitable option for you.

For pre-owned cars, you can receive a flat rate starting from 2.99 percent, but during promotional periods the rates can drop even further.

If you are buying a new car you will find rates can be much lower. Because of this you may find rates as low as 1.5 percent on new cars, plus the payments will be spread over five years.

Typically, showrooms will have their preferred bank partners. However, it is advisable to check with other banks as well to see their rates. This way, you can compare the figures and choose the best one that suits your budget.

Setting up instalments

Your outstanding liabilities will play a role in determining how much you can afford to pay in instalments on a monthly basis.

The rule is that the amount you’ll be paying towards your car loan must not exceed half of your total salary, minus other liabilities. So if your monthly salary is
AED 15,000, your loan payment should not be more than AED 7,500  per month.

The figures, of course, will vary depending on the amount you’re paying monthly for your other loans including credit cards.

When you apply for a loan, banks will typically require a salary certificate from your employer and at least three months of bank statements along with a valid visa and Emirates ID. Approval can be in as little as
48 hours.

Finally, read through the fine print in the loan agreement before signing. Check the figures and make sure that the details and numbers match up with everything that you’ve been told and agreed on. Keep a copy of the contract for reference; you’ll need it in case of problems in the future.

WORDS Ferdinand Godinez

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