The green auto loan market has ramped up after two new players launched eco-friendly car finance products to encourage customers to buy hybrid or electric vehicles as part of the UAE’s 2021 Sustainability Vision
National Bank of Fujairah last week unveiled its Green Auto Loan of up to Dh1 million for customers looking to finance environmentally friendly vehicles, while Emirates Islamic also announced a new promotion on its sharia-compliant Green Auto Finance product for cars financing of up to Dh1.5m.
Vince Cook, chief executive of National Bank of Fujairah, said banks have a big role to play in accelerating the transformation towards increased sustainability in the UAE “by making significant capital available to support green initiatives especially with hybrid and electric cars being available at higher price points”.
Emirates NBD and HSBC were the first banks in the UAE, the second-biggest Arabian Gulf economy, to announce eco-friendly car loans in May 2017 after the lenders signed a memorandum of understanding with the Ministry of Energy. At the time the government hoped the favourable fees and rates would catapult sales of zero-carbon emission vehicles, as part of the UAE’s clean energy drive.
NBF’s Green Auto Loan is available to residents over the age of 18, earning more than Dh5,000 per month and are able to extend the tenure over five years for new cars or 48 months for used cars.
Sharif Rafei, the head of the retail banking & Fujairah region at NBF said the product offers EV owners a flat rate of 2.2 per cent compared to a range of 2.75 to 4.25 per cent for conventional cars. The financing comes with a processing fee of 1 per cent of the loan value or Dh2,500, whichever amount is lower.
“The main difference is the lower interest rate as compared to conventional car loans, which is currently at 2.75 per cent for new cars,” said Mr Rafei.
Emirates Islamic’s sharia-compliant Green Auto Finance, first launched in February this year, is also available to customers earning over more than Dh5,000 per month. Under the new promotion launched last week a 50 per cent waiver is applied on processing fees to customers earning less than Dh30,000, at 0.5 per cent of the finance amount, anyone earning over Dh30,000 has zero processing fees.
However, Bill Carter, chief systems and innovation officer for Autodata, a Dubai-based automotive data supplier, said hybrid and EV owners should still compare the market as there may be better options.
"In the current market, it pays to go to the dealership armed with these deals to see if they will better them," Mr Carter said. “Many dealers are desperate to sell and so will offer such things as zero deposit or zero per cent finance. In real terms they are using their margin to subsidise these deals. They may also get financial support from the car manufacturers to try and stimulate sales.”
Ambareen Musa, the chief executive of the financial comparison website Souqalmal.com, said she expects more banks to jump on the "green loan bandwagon".
"With Tesla’s foray into the UAE market, and big car manufacturers like GM and Ford announcing the launch of their electric cars in the Middle-East, the future of electric vehicles in the country looks promising", she said. "Incentives like free charging at Dewa-approved charging stations until 2019 as well as free designated green parking and free Salik tags by the Roads and Transport Authority, are all aimed at boosting demand for electric cars and hopefully driving up sales in the coming years."
However, Mr Carter said there was unlikely to be a surge in green auto loans unless more incentives for residents to own and run eco-friendly cars are rolled out.
"Those unsure about the technology and the residual value should consider a lease rather than buying to mitigate the risk," he said: "In the UK market, where "green" cars have been around much longer than the UAE, we are seeing used electric cars rising in value so this may happen in the longer term in UAE."
Marwan Hadi, head of retail banking and wealth management, UAE, at HSBC, said hybrid and EV owners over the age of 21 earning over Dh7,500 a month can borrow a minimum of Dh30,000 and a maximum of Dh918,000, depending on their eligibility, with the bank's Green Car Loan.
"HSBC Green Car Loan customers are rewarded with a discounted interest rate and fee for buying an electric or a hybrid vehicle – a 50 basis point discount on applicable reducing interest rate and a 50 per cent discount on applicable arrangement fee," he said.
Emirates NBD’s Green Auto Loan, meanwhile, offers a 0.25 per cent discount on the applicable rate of interest to customers interested in buying electrical hybrid cars.
Suvo Sarkar, senior executive vice president & group head - retail banking and wealth management, at Emirates NBD said its green auto loan was part of the bank's investment strategy to create a sustainable environment. The bank was the first in the region to launch a charging station as well as providing designated 'green' parking spaces for electric vehicles at select branch locations.
“We are taking several steps to enhance and encourage a greener marketplace, in addition to digitisation of internal and customer-facing processes to lower paper usage, putting in place energy saving initiatives and working towards making our customer events carbon neutral," said Mr Sarkar.