Two UAE banks have launched green auto loans to encourage customers to buy hybrid or electric vehicles (EVs), but experts warn the discounted financing terms offered are not attractive enough to battle the “zero per cent” deals available on regular cars.
HSBC and Emirates NBD announced the eco-friendly car loans on Wednesday, after signing a memorandum of understanding with the Ministry Of Energy. The government hopes the favourable fees and rates will catapult sales of zero-carbon emission vehicles, as part of the UAE’s clean energy drive.
The two financial institutions will provide eligible customers a 50-basis-point discount (0.5 per cent) on the applicable reducing interest rate or a 0.25 per cent deduction on a flat-rate basis. HSBC has also promised a 50 per cent discount on the loan arrangement fee, while Emirates NBD is offering cash back on full processing fees for a limited period.
But the discounts will not make these types of cars more affordable, said Jonathan Rawling, the chief financial officer at compareit4me.com. “The savings that buyers will see in finance won’t make much of a dent on the generally high premium prices of electric cars,” he said.
Mr Rawling cited the example of an EV that costs Dh200,000 (Tesla’s Model S sedan starts at Dh275,000); for this, a buyer must make a 20 per cent down payment, totalling Dh40,000, and would need a car loan for the remainder. Mr Rawling said that the arrangement fee would be Dh1,600 with annual interest payments of Dh4,800, assuming a flat interest rate of 3 per cent.
With HSBC’s 50 per cent discount, the arrangement fee would be Dh800, and yearly interest payments down to Dh4,400. A three-year car loan at those rates would only save a buyer about Dh1,200 on interest plus Dh800 on the one-time processing fee – a saving of 1 per cent on financing. “Depending on the value of the car, or the length of the loan amount, you might see that number move a little higher, but these aren’t enormous savings relative to the high cost of the vehicles in the first place,” Mr Rawling said.
Another barrier the green loans face is the multitude of zero-interest-rate deals offered by dealerships on conventional cars. With Ramadan fast approaching, customers are expecting a slew of promotions on petrol-fuelled cars at dealerships across the country – a deterrent for those interested in a green loan, according to Bill Carter, the head of valuation and product manager at Autodata Middle East.
He said that the words “zero per cent” attract consumers, despite it only being an illusion. He said the public needed to be educated that it is low-rate, not zero-rate, financing, as any discount is most commonly made up in the vehicle’s price.
“As we all know, there’s no such thing as a free lunch. Someone is paying somewhere,” Mr Carter said.
Abdulfattah Sharaf, HSBC’s UAE chief executive, said its promotion was aimed at encouraging and rewarding customers who are committed to supporting the environment. “With its launch, we hope that we can genuinely help engender positive change in the country,” he said.
Anyone interested in signing up for a green loan may encounter another stumbling block – only a handful of car brands, including Toyota, BMW, Renault and Tesla – offer these types of vehicles in the UAE.
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