The days of paying big expenses such as rent and school fees a year in advance are coming to an end for UAE residents.
This offers financial relief to those struggling with rising costs and stagnant incomes, as they can spread payments across 12 months rather than pay lump sums upfront.
In the most recent shift, The National reported earlier this month that landlords on Abu Dhabi' s Reem Island are allowing apartments to be paid for in 12 monthly instalments as the depressed property market squeezes their profits,
"Finance companies in the UAE have evolved, with the systems able to handle more frequent payments and the risk management to offer interest-free payments and instalment financing. There is also strong demand for this, with people wanting to purchase goods in a more affordable way," says Steve Cronin, the founder of DeadSimpleSaving.com, which helps investors manage their finances.
“Regulators also support it because it greases the wheels of the consumer economy, as long as finance rates are reasonable. This is the way the rest of the world has gone, so it is inevitable the UAE will have to follow.”
Paying large bills upfront can cause cash flow problems, says Mr Cronin, plus it makes people reluctant to invest as they tie up their money in cash that could otherwise be invested.
“By paying monthly, your expenses will then be more steady and predictable, allowing you to project your future expenses and invest any surplus,” he adds.
However, check that monthly is actually a better deal, as paying a lump sum can sometimes secure a lower bill or lower interest rate.
While phone and utility bills have always been chargeable monthly, here are eight other lifestyle costs you can spread across the year to ensure your household finances stay on track:
One of the biggest financial hurdles renters face in the UAE is ensuring they have enough cash to pay their entire year’s rent in one year. Traditionally landlords demand one cheque but in recent years this has shifted to two a year and for some, quarterly payments. Now, with the property market depressed by falling rental rates, landlords are offering more flexibility, including options to pay monthly.
"I believe the 12-cheque payment will become more prevalent in the future, especially as credit referencing matures," says Mario Volpi, the sales and leasing manager at Engel & Volkers.
For those who do not have that luxury of monthly payments, 12-month rental bank loans are available but this means paying interest on top of your rent, which increases your outlay.
“Eventually, paying the whole year upfront will disappear although for those who are still able to, it is a guaranteed way to lower the rent," adds Mr Volpi. "The rental market is currently experiencing a softening of prices and as such the tenant holds all the cards with landlords willing to accept more cheques at this time to secure a tenant rather than facing void periods with no income at all.”
2. School fees
School fees can be hefty in the UAE. Dubai, for example, has the second-highest school fees in the world, according to HSBC, costing $99,378 to educate children from primary school to undergraduate level. While parents are typically charged termly, they can also spread the cost over 12 months, via certain credit cards.
"Check with the school if they have tied up with a specific bank that offers a zero per cent EMI option," says Ambareen Musa, the founder and chief executive of the price comparison site Souqalmal.com.
“Also check with your credit card providers for such offers. For instance, NBAD offers nought per cent EMI payments for school fees with its co-branded card in collaboration with GEMS. Standard Chartered and ADCB also offer zero per cent interest payment plans on school fees."
Ms Musa warns parents to ask their bank about any fees involved, such as processing fees for setting up the instalments.
“And if you miss your monthly payments, you may end up paying interest along with late payment and over-limit charges, so understand the fee structure before you sign up.”
3. Car insurance
According to a 2016-2017 analysis of car insurance policies by Souqalmal.com, the average premium for comprehensive plans was around Dh3,000, which is why the aggregator now allows consumers to swap their annual premium payment for monthly installments, via their credit cards.
The company introduced the concept in February after carrying out a UAE-wide survey on payment preferences that found 56 per cent of the respondents would prefer to pay monthly if given the option.
The instalment payment option is available for purchase of car insurance plans across all insurance providers listed on Souqalmal.com.
“Car insurance buyers can select this option at the checkout stage. As of now, cardholders using credit cards from CBD, Dubai First, Emirates NBD, NBAD and Mawarid Finance can opt for instalment payments, and we're planning to extend this to other credit card providers going forward," says Ms Musa.
The company plans to expand this offering to other insurance products.
4. A new car
Despite the interest applied, taking out a car loan may actually benefit your finances as you can use the lump sum to make a more profitable investment.
"Car loan interest rates can be as low as about 3 per cent in the UAE, while some GCC bonds pay out more than 5 per cent," says Raaed Sheibani, a growth hacker at CarSwitch. "A car loan also enables you to buy a 'better' car than you would have otherwise been able to afford, such as a newer car that is more fuel economic, or safer, or is less likely to have unforeseen repair bills."
Mr Sheibani says interest rates range from 2.65 per cent to 4.99 per cent depending on your monthly income, employment status, the specific car you plan to buy, and whether you bank with the same institution you want to get the loan from.
However, with a car loan you are not the sole owner of the car.
“Before selling the car, all outstanding amounts owed to the bank [plus any early settlement penalties] must be settled. This means that if the amount that you need to settle is greater than the amount you can sell your car for, you’ll have to actually pay money to sell your car,” says Mr Sheibani. “Our research shown some cars to depreciate as much as 30 per cent in a single year. With those rates, it’s not uncommon to find your car has depreciated faster than you’ve been paying off your car loan.”
A number of new initiatives have sprung up in recent years to help residents budget more effectively for the cost of going out or staying in. Among them is Privilee, a lifestyle membership scheme that offers access to over 25 beach clubs and luxury hotels across the UAE, including hospitality brands such as Saadiyat Beach Club and the Westin. Single membership costs Dh629 a month although paying upfront lowers the monthly cost to Dh529.
Another entrant to the market is Family Pass, an annual membership club offering access to nine entertainment destinations, including IMG Worlds of Adventure and Aquaventure Waterpark. A family of four pays Dh999 a month while a single user pays Dh300.
Founder Stuart Paterson says: “Spur of the moment trips usually mean paying full price and members receive additional perks such as discounts on certain F&B and retail at a number of attractions and even complimentary valet parking.”
When it comes to staying in, cheap monthly TV and music packages can also keep expensive entertainment costs at bay. Netflix, for example, costs from $7.99 for a basic package to view films and TV series while Apple Music comes in at Dh19.99 a month for an individual or Dh29.99 for a family to consume as much music as they want.
6. Homes and home improvements
Some things are just too big to save for and we need to take out a loan to finance them. This could be a personal loan to make home improvements or a mortgage to buy a home.
According to Reidin, over half of UAE home buyers now look to finance their purchase, a huge leap from less than 20 per cent in 2012.
"Given the choice, the financially astute will typically prefer to pay in low-interest credit rather than cash," says Lukman Hajje, chief commercial officer of Propertyfinder Group. "Cash is king, is completely liquid, and much harder to obtain than credit whereas property has high entry costs and exit costs and can take time to sell. And you can't sell a small portion if you need quick cash. But it is considered a safe asset, banks are comfortable lending at low-interest rates below 4 to 5 per cent per annum for up to 25 years."
When it comes to home improvements, such as a new kitchen, a home loan can ease the burden.
“From a 'cost' perspective, if you have to finance a big purchase, it is better to do so with a loan instead of a credit card,” says Ms Musa. “If you're not planning to pay off your monthly bill in full, you will end up paying hefty interest on the outstanding balance given the high interest rates on credit cards in the UAE, close to an average 40 per cent a year. This could be three times more than the annual interest rate you can secure with a personal loan.”
Replacing or upgrading a smartphone can be costly, however, telecoms providers offer a number of payment plans where the cost of the phone is incorporated into the monthly bill. Etisalat’s Smart Pay offer, for example, allows you to own the iPhone X 64GB from Dh185 a month, excluding VAT. This locks you into a 24-month contract but it makes the cost of the device, which typically retails at around Dh3,700, more manageable in the short term.
Remember, the commitment period comes with charges if you exit early. For example, if the device monthly rental is Dh150 for a 12-month contract, and the customer terminates the contract on the 10th month, an exit charge of Dh300 will apply, which is Dh150 over two months.
8. Big-ticket purchases
Thanks to a concept called the easy payment plan, expensive purchases such as white goods, furniture, flights or electrical items can be converted into monthly instalments on your credit card at zero interest.
But it's an option that must be exercised with caution, warns Ms Musa.
“Many see this as a way to be able to afford big-ticket purchases and defer paying for them,” she says, warning users to take into account interest rates, processing fees, prepayment penalties, late payment penalties and penalty interest rates.
“It's best to have a look at the small print before opting for EMIs on your credit card. Even with the zero per cent EMI option available with specific merchants or special offers with zero processing fee, cardholders must remember that the instalments are essentially debt."