Car buyers urged to compare total financing cost, not just monthly instalments

Dubai: Traders said banks’ rejection of car finance applications, due to high financial commitments or failure to meet income and employer credit requirements, has prompted some customers to turn to offers from car dealerships or affiliated finance companies, despite their higher cost compared with bank financing.

They said these companies often provide faster approvals and more flexible terms in some cases. However, they warned that the focus on easy procedures and affordable monthly instalments can hide a significant increase in the final price of the vehicle, particularly after interest, fees, insurance, maintenance contracts and final payments are added.

They called for car sales and finance providers to be required to display both the cash price and the total amount the customer will pay by the end of the contract. They said some offers highlight a monthly instalment that appears affordable without clearly explaining the difference between the vehicle’s cash price and its total financed cost.

Central Bank regulations set a maximum car financing limit of 80% of the vehicle’s value and a repayment period of no more than 60 months, with instalments included in the debt-burden ratio.

Consumer protection standards also require licensed financial institutions to provide a “statement of basic facts”, disclosing the annual percentage rate (APR), the method used to calculate interest or profit, and all applicable fees.

Meanwhile, experts and specialists in the automotive sector said internal car financing is offered through specialised finance companies affiliated with dealerships or through partnerships between dealerships and licensed finance providers. They noted that such arrangements are subject to the regulations and requirements governing vehicle financing.

They said that internal financing can provide greater ease and flexibility in some cases, depending on approved financing procedures, and may include offers linked to vehicles from the same automotive group. However, they stressed the importance of customers fully understanding the terms and conditions of financing, whether through banks or finance companies, to compare options and choose the most suitable one in terms of cost and procedures.

Cost comparison

Banking expert Amjad Nasr said customers should not compare car financing options solely based on the monthly instalment, but on the total amount they will pay from the date the contract is signed until they fully own the vehicle.

He said the difference in monthly repayments may appear small, but it can become substantial when the entire financing period, fees, insurance and any final payment are taken into account.

Nasr explained that there are several car financing models in the market. The first is bank financing, where the dealership sells the vehicle, the customer obtains finance from a bank, pays the down payment and then repays the bank in instalments. He noted that commercial agreements may exist between dealerships and banks that include incentives or referral commissions, but said this does not reduce the importance of comparing the total financing cost.

He added that the second model involves financing through a company affiliated with the dealership or vehicle group. While this may offer faster approval and greater flexibility in some cases, it can also be more expensive than bank financing. Customers should therefore consider the total amount payable rather than focusing only on approval speed or lower monthly instalments.

Nasr said a third model involves direct instalment arrangements through the dealership, where permitted by the nature of the transaction, licensing requirements and other arrangements. He noted that the deferred sale price may differ from the cash price, making it essential for customers to understand the cash price, total deferred price and any additional fees or obligations.

He added that other models include leasing and Islamic finance products such as Murabaha, each with a different contractual structure. As a result, comparisons should not be based solely on profit rates or advertised interest rates, but on total cost, obligations, ownership conditions and early settlement terms.

Alternative financing

Nasr said customers with issues in their Etihad Credit Bureau records, or those with high financial commitments that have led to bank rejections, may be able to obtain alternative financing. However, he stressed that easier approval does not necessarily mean lower costs.

He advised customers to first understand their credit position, correct any inaccurate information and settle outstanding arrears or obligations before comparing finance offers from different providers.

“If a customer is forced to resort to higher-cost financing, they should clearly understand how much they are paying for that flexibility and speed,” he said.

Nasr explained that if a vehicle has a cash price of AED100,000, but the total paid after financing and associated costs rises to AED120,000, AED130,000 or more, then that figure represents the true cost that should be compared, rather than the monthly instalment alone.

He said consumers should obtain four key figures before signing any contract: the vehicle’s cash price, the down payment, the total instalments and all fees and charges, and the overall amount payable by the end of the contract.

“This comparison allows customers to understand how much they paid for the vehicle itself and how much they paid for financing, enabling them to make a decision based on total cost rather than ease of approval,” he said.

Credit inquiry

Nasr suggested expanding credit inquiry coverage to include car companies and showrooms that offer direct financing or instalment plans, allowing these obligations to be listed and checked through Etihad Credit Information in accordance with approved regulations and controls.

He said credit history should not only help financial institutions decide whether to approve or reject applications, but should also help protect consumers from taking on obligations beyond their ability to repay.

He explained that when financing or instalment obligations are not reflected in the credit information available to lenders, the customer’s full level of debt may not be visible when applying for additional financing. This could result in monthly commitments exceeding their actual repayment capacity and reducing disposable income.

Nasr said including these obligations within the Etihad Credit Information system, while requiring finance providers to report and verify them before issuing new financing, could improve market transparency and protect both customers and finance providers.

He added that Etihad Credit Information could help balance access to financing with the need to protect consumers from excessive borrowing, ensuring that easy access to alternative finance does not lead to unsustainable debt levels.

He noted that a similar approach was adopted for buy-now-pay-later services, which were initially outside the scope of credit information monitoring before later being incorporated into the credit database.

Higher cost

An estimated comparison between bank financing and financing provided through dealership-affiliated companies shows that the total cost of a vehicle can rise significantly depending on the financing rate.

For a vehicle priced at AED100,000, with a AED20,000 down payment and AED80,000 financed over five years, bank financing at an APR of 5% would result in total repayments of approximately AED90,600. Including the down payment, the total vehicle cost would be around AED110,600, with financing costs of approximately AED10,600.

By contrast, financing at a 10% interest rate would result in total repayments of approximately AED102,000, bringing the total vehicle cost to about AED122,000. In this case, financing costs would reach approximately AED22,000.

This means the buyer would incur around AED11,400 in additional costs by choosing the higher-cost financing option, while the financing cost alone would be more than double that of the bank financing option, despite the vehicle’s original price remaining unchanged.

Internal financing

Automotive expert Mamdouh Khairallah said internal vehicle financing is offered either through finance companies affiliated with the same group that owns the dealership or through partnerships with specialised finance providers.

He said these arrangements can take different forms, including instalment sales, lease-to-own agreements and leasing without ownership.

Khairallah said dealership financing is subject to regulations covering down payments and other requirements. However, some providers may offer greater flexibility than banks through financing promotions, quicker approvals and other facilities aimed at supporting vehicle sales.

He stressed that all financing arrangements, whether offered by banks or dealership-linked finance companies, involve specific terms and obligations. Customers must fully understand these conditions to compare available options, particularly as financing companies apply standards designed to achieve suitable returns in line with market conditions.

Ahmed Salah, a sales consultant at a car company, said only a limited number of dealerships provide internal financing and that such arrangements are conducted through approved finance companies and in compliance with applicable financing regulations.

He said some customers turn to internal financing after encountering difficulties obtaining bank financing, even without a direct credit rejection under existing standards. In some cases, dealership-affiliated finance companies may offer additional facilities to support sales within the same automotive group.

Salah stressed that customers are free to choose between financing offers and terms, provided they comply with laws and regulations. He emphasised the importance of comparing financing benefits and total costs rather than focusing solely on quick approvals or ease of obtaining a vehicle.

A sales consultant at a car dealership, identified only as “W.H.” at her request, said complaints from some customers about the higher cost of internal financing can be addressed by researching and comparing available financing methods, including interest or profit rates and financing terms.

She said some customers prioritise flexibility and easier financing without fully considering that certain offers may include conditions and costs that significantly increase the total amount payable.

She added that car financing is governed by regulatory standards and offers a range of alternatives, urging customers to understand the terms of each offer and compare the total cost before selecting a financing option.