Leasing a car in the UAE - should you do it?

Does it make more sense to buy or lease a car for UAE residents? Calculating what will work best for you depends on your individual circumstances – especially the length of your stay, Gillian Duncan writes.

Ashish Nanda, the senior general manager of Shift Car Rental, is confident he can convince you on the economic sense of leasing.  Pawan Singh / The National
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Ashish Nanda is a persuasive man. The “leasing guy”, as he calls himself, claims he can convince anyone of the benefits of leasing over buying a car.

“And tomorrow I am sure you will take that car you own back and come lease from me,” says the senior general manager of Shift Car Rental, part of AW Rostamani Group.

But is leasing – hiring a car for a minimum of 12 months – really cheaper than buying?

Well, at least according to data from Shift, leasing is more cost-effective for UAE residents – costing Dh1,770 per month for a four-door saloon over a 12 month period versus Dh1,946 for a buyer. Hang onto the car for four years and Shift says a leaser will pay Dh1,370 a month during that period – against Dh1,477 for the car owner.

These figures apply to car covering a distance of 60,000km a year and factors in insurance, registration, maintenance and loan interest.

“If you go to Pizza Hut and you only want two slices, you pay unnecessarily for the whole pizza, eat two slices and maybe take the rest home. But in cars it’s a different story,” says Mr Nanda.

He argues that if you buy a car to use for two years you pay for the whole pizza, so to speak. Whereas you should only pay for that period, ie the two slices you want to eat, not the overall cost.

It was the cost and hassle factor of servicing and maintaining a car that convinced Eva Lindsay and her husband to lease rather than buy when they arrived in the UAE almost three years ago. They currently lease a Toyota Fortuner for Dh2,300 a month. Their lease agreement is for a period of three years.

“We basically counted it all together and decided that even if we own it for three years, the equity will be so little by the time we sell that for the hassle of maintaining it and paying insurance we should just lease,” says Ms Lindsay, 32, from Slovakia.

Ms Lindsay says the decision has paid off – the car has had battery problems and Hertz, the rental company, has provided a temporary car each time and fixed the problem.

“They also do the one-year maintenance and clean it all. It is just completely hassle-free,” she adds.

Leasing companies stay competitive by buying in bulk – making the cars, their maintenance and spare parts less expensive. The rule of thumb is the longer you lease, the cheaper the contract with the maximum period generally 48 months, or four years.

At the end of a contract, leasers can have the option to buy the car at a predefined value or extend the period at a lower rate.

In leasing you tend to pay three months up front – a security deposit that is used towards the cost of the last three months of the contract, whereas Central Bank rules dictate that when buying you have to pay 20 per cent of the cost of the car in cash. However, a leaser will have no equity in the car they drive and there are penalties for exceeding an agreed mileage. This can be considerable. For example, Shift charges 30 to 35 fils per kilometre for standard cars and up to 40 to 50 fils per kilometre for premium sedan or SUVs.

Leasers can also face a penalty for exiting a contract early – and exiting a contract is generally not allowed in the first year, so you are liable for the instalments that remain. In subsequent years it costs around three months’ instalments. Car owners, on the other hand, can sell at any point.

Andrew Prince, a financial planner at Devere Acuma, from England, has done his sums and decided he is better off buying a car to replace his ageing 2007 Toyota Rav 4.

“For the Dh3,000 a month I am looking at spending, I could get a brand new Infiniti Q50 for leasing,” he says.

“And I know that over three years I would pay my Dh3,000 a month and have no maintenance, no wear or tear and not have to worry about insurance. So it would give me peace of mind. Or if I took it over a slightly shorter period it would be slightly more, but every two years I could drive the latest model. Or if I didn’t like the colour every two or three years I could change.”

But, for a similar monthly instalment, albeit with a down payment of 20 per cent, he can own the car at the end of the three years.

“It starts off at let’s say a Dh130,000 list price. After three years it’s only worth Dh60,000 but that Dh60,000 is mine and not the lease company’s,” he adds.

And that is the key difference between the two. In leasing you avoid the hassle of maintenance and other issues, but by buying you end up with an asset, albeit a depreciating one.

Jules Krickl, 39, from England, rented when he first arrived in Dubai with his wife around three years ago.

He paid about Dh1,800 a month at a time for a “simple little Mitsubishi Lancer” as he settled into life in the UAE. But after a while he wanted a larger, safer car. So he took a small bank loan over three years to buy a Mitsubishi Pajero 2010 and is paying less than the rental fee each month with instalments of Dh1,550, for a more substantial vehicle, around Dh250 less per month than what he paid while he was renting.

He has also been lucky.

“It still had a number of services included when I bought it until 115,000km and even now I still have two left on it. It hasn’t had any problems,” says Mr Krickl.

Joel Kreibich, 29, from England, cannot say the same about the second-hand Volkswagen Touareg he bought. He paid around Dh68,000 for the five-year-old car when he purchased it from a private owner in 2013.

“At its first service at Volkswagen they pointed out all the suspension needed fixing and lots of non-genuine parts had been used on it, so for them to fix it would cost a lot more to replace all of these parts with genuine parts. Also all of the brake discs, brake pads needed changing not long after and various bits and bobs,” he says.

“The quote was about Dh16,000 to fix everything. I did all of the work they deemed critical and a bit more. It cost me Dh12,000.”

Buying a second-hand car can be more of a gamble, but Preeti Bhambri, the founder of moneycamel.com, says for a period of two years and above, buying a car is generally cheaper than leasing.

She also maintains that buying a new car is generally worth it if you are going to hang on to the car for the long-term – four years and upwards. However, if you only plan to stay in the UAE for less than a year, Ms Bhambri advises taking out a monthly rental.

Renting short-term can also be a good option while you decide whether to lease or buy. You can rent by the day, week or month and it is wise to shop around for a good deal. There are comparison sites available.

Katie Mckellop, who moved to Abu Dhabi from England with her family two years ago, rents for three months at a time which at Dh2,500 for a Kia Sportage for a month is around Dh500 cheaper than it would be renting month by month, she says.

But they have decided they may now buy so they can have an asset at the end of the loan term.

“We are considering buying at the moment, but it’s just job security until we know what is going on with my husband’s work. If we are staying in the UAE we will seriously look at buying at the beginning of next year,” she says.

Rental or long-term leasing are also advised for those with a poor credit history or if they work for a non-listed company.

“In both cases you would get charged a much higher rate on a car loan than on leasing,” says Ms Bhambri.

UAE banks, however, offer competitive car loans rates to those with a good credit history, starting at around 2.49 per cent in the case of RAKBank.

“Purchasing a vehicle in the UAE has become easier thanks to price tag discounts offered by dealers and flexible finance plans extended by partner banks,” says Lina Yahya, head of auto finance at RAKBank.

“Some finance schemes include using balloon payments, where the customer owns the vehicle but with buy-back guarantees from the dealer. So the customer has the option to pay lower instalments on the purchased vehicles with the ability of returning it to the dealer or trading it with a newer model after a minimum period of two years.”
 That sounds a lot like leasing and Mr Nanda would argue that leasing from an actual leasing company is the best option.

“It’s like walking into a Pizza Hut and only paying for those two slices you want to eat,” he adds.


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