Al-Futtaim Toyota yesterday became the latest car dealer to launch a plan to help buyers finance vehicles under strict new rules imposed by the Central Bank to thwart excessive borrowing.
In May, the bank introduced a mandatory 20 per cent deposit for vehicle purchases as well as a cap on repayments at 50 per cent of a buyer's monthly income.
Under Al-Futtaim's plan, however, the majority of the deposit is added to the monthly payments to be repaid over the 24-month life of the loan.
"If you take the current market, people are taking the deposit and putting it on their credit cards," said Andrew Squires, the manager for sales, planning and distribution at Al-Futtaim Motors. "What we are trying to do is find a better alternative."
The Central Bank rules were introduced after high levels of loan defaults during the financial crisis to ensure that consumers would not take on burdensome levels of debt. But banks and car buyers have been getting around these rules by using unsecured loans to pay deposits.
Mr Squires said Toyota's scheme had been structured in a way that it was within the Central Bank's guidelines and that the debt-to-income ratio would not be breached.
As part of the scheme, which will initially be available only during Ramadan, a Toyota Corolla will cost Dh999 (US$271) per month for 24 months, with a down payment of Dh999.
Al-Futtaim Toyota, the market leader in the UAE, will offer its full range of models as part of the deal, but at different prices.
"We will extend the scheme to every model in our range," said Simon Frith, the managing director of Al-Futtaim Motors. "In a market that is a little confused, we are hoping to bring simplicity and transparency."
Car dealers across the Emirates have complained that sales have been affected by the introduction of the deposit rule, because many buyers cannot afford the initial cost.
In response, dealers have come up with innovative ways to entice customers during Ramadan and help them finance car purchases.
Along with its financing scheme, Al-Futtaim Toyota will enter everyone who buys a car in a draw to win a prize of Dh1 million (US$272,000). It will also give away an iPad or iPod with every car purchase.
Al Fahim Group is charging buyers 2.75 per cent interest on loans for Mercedes-Benz, Fiat and Jeep vehicles in Abu Dhabi, below the industry benchmark of 4.5 to 5 per cent.
"Consumers are looking for financial value for money," said Chris Preston, the chief executive of automotive at Al Fahim. "Our market is definitely up and things are improving, but giving people a financial improvement will help."
Kevin Hughes, the general manager for the car dealership AGMC in Dubai, said the company had come up with a "menu of finance options" for BMWs during Ramadan, including lower interest rates on payments for six to 12 months.
