Banks around the UAE are tightening their automobile lending programs. Previously, banks were accepting three-month pay slips or credit card statements as proof that the applicant was creditworthy and a suitable borrower. Now, banks will be tapping into the credit history of a potential borrower in order to better gauge the risk of default. If a bounced check appears on the credit report of an applicant, they are unlikely to receive an auto loan.

Commenting on the issue, Salah Yamout, Sales and Marketing Director at Arabian Automobiles stated, “The entire credit history of the individual is up for scrutiny and as with some of the other measures the regulator has been taking on retail banking exposures, it means that only properly assessed buyers are eligible for funding. But this in no way slows down the processing of applications – all that is required is the updated credit history of the applicant.”

The recent launch of Al Etihad Credit Bureau, which is in the process of establishing a comprehensive credit reporting system, will help banks in their assessment of loan applications. Steve Faulkner, Managing Director of Al-Futtaim Finance had this to say, “Etihad Credit Bureau creates the likelihood of a movement towards rates reflecting credit risk … The UAE will benefit further from the introduction of the credit bureau.”

With the auto sector booming, banks and dealerships have been rolling out very competitive deals. Recently rolled out products include auto loans with 0% interest for 3 years. According to bayzat, the current average rate for auto loans is 3.39% (flat rate), with banks such as Emirates NBD and Mashreq offering auto loans for as low as 2.35% (flat rate).

Faulker, of Al-Futtaim Finance, added, “Most banks supported automotive financing with rates starting from 2.49 per cent in the first-half; as we head towards year-end, rates have increased marginally to 3.25 per cent. Customers continue to benefit from low rates in the UAE and I can only forecast that rates ‎will increase in 2014, closer to 4.0 per cent.”

The introduction of credit history scanning by the banks in the UAE helps move the banking industry towards a more secure lending future. The goal of any central bank is to minimize the amount of defaults that occur as this has a negative ripple effect. Having a system in place that helps to identify individuals who pose a high credit risk will help stabilize and develop the industry.

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