Well, first off, if you have cash lying somewhere in a zombie account and have no intention of getting any returns on it, maybe that’s the right choice, as you would be losing value, due to inflation on one side and paying interest or profit rate on the other.
If, however, you prefer to have a structured cashflow and require some breathing space to get on with your monthly expenses, financing the car is always an option. Make sure you can afford all repayments and do not miss any payments.
Looking at the Souqalmal.com data in the last six months, the average car loans rates have been decreasing by about 0.3 percent on the reducing rates. From what we notice, local banks have been the major influencers of decrease in rates – CBD, ADIB, ADCB and DIB. One of the loans even dropped by ~ three percent. So it could be the right time to buy, not only due to Ramadan deals, but due to lower rates too.
When choosing a car loan, you’ll probably have many options at the dealership or if you choose to use Souqalmal.com’s comparison engine. However, make sure you know the details and the fine print, as these can come as a surprise later down the track. It is critical to fully understand the terms and conditions, from the first year, all the way through the tenure of the loan.
One of the most important aspect of the car loan is the rate. Banks generally advertise two type of rate, flat and reducing, so when you compare, make sure you are comparing apples to apples – i.e flat against flat and reducing against reducing.
A flat rate is a rate charged on the principal amount every year; a reducing rate is a rate only on your outstanding balance. A reducing rate is generally on the higher side, but does not mean that the total cost of your loan is higher. Check out our car loan comparison engine, as we compare all the car loans in the UAE and have both the reducing and the flat rate available to make sure that the rates are transparent to you.
Some other very important fees that could increase the cost of your loan:
- Arrangement fee – most car loans have an arrangement fee which is paid upfront and can be either a percentage or an actual fee, depending on the bank… but this would add to the total cost of the loan
- Early settlement fee – If you decide to pay off your car loan early, most banks will impose a fee which generally starts at one percent of the loan amount. This is important if you intend to pay off your car loan early, as it is an extra cost to financing your car
- Downpayment – by law the minimum downpayment on a car loan is 20 percent; however, for consumers who would prefer financing with no downpayment at all, the only option is to go with an Islamic car finance mechanism where you lease the car from the bank for a period of time and buy it from them at the end of the tenure.
- Salary transfer – with a salary transfer, you would normally get a better rate, so it’s worth checking on Souqalmal.com which banks provide car finance with salary transfer and how they compare with non-salary transfer loans