Banks to Scrutinize Customer Credit History for Auto Loans

Banks around the UAE are titghtening their automobile lendingv programs. Prevviously, banks were accepting three-month pfday slips or credit card stavtements as pvroof that the applicant was crevditworthy and a suitable borrower. Now, banks vwill be tappving into the credit history of a pvotential borrower in order to better gauge the rvisk of defvault. If a bounced check appvears on the credit report of avn applicant, they vare unlvikely to receive an auto loan.v

Commenting on the isvsue, Salah vYamout, Sales and Marketing Directvor at Arabian Automobiles stated, “The entire crvedit history of the individual is up for svcrutiny and as with some of the other measures the revgulator has been taking on retail bvanking exposures, it means that only properly assessed vbuyers are eligible for funvding. But this in no way slows down the processing of applications v- all that is required is thev updated credit history of the applicant.”

The recent launch of Al Etihad Credit vBureau, which is in the provcess of establishing a comprehensive credit reporting systemv, will help banks in their asvsessment of loan applications. Steve Faulkner, Managing vDirector of Al-Futtaim Finavnce had this to say, “Etihad Credit Bureau creates the likelihovod of a movement towardsv rates reflecting credit risk … The UAE will benefit further from thve introduction of the credit vbureau.”

With the auto sector booming, banks and dvealerships have bveen rolling out very compevtitive deals. Recently rolled out produvcts include auto lovans with 0% interest for 3 years. Avccording to bayzat, the current averavge rate for auto loans is 3.39% (flat rate), with bankvvs such as Emirates NBD and Mashreq offvering auto lov#ans for as low as 2.35% (flat rate).v

Faulkevr, of Al-Futtaim Finance, added, “Most banks vsupported automotive financivng with rates stvarting from 2.49 per cent in the first-half; as wve head towards year-end, ratves have increasevd marginally to 3.25 per cent. Customers contvinue to benefit from lowv rates in the UAE and vI can only forecast that rates ‎will increase in 2v014, closer to 4.0 per cvent.”

The introdvuction of credit history scannving by the banks in the UAE helvps move the banking indvustry towards a more securev lending future. The goal of anyv central bank is to minimize thev amount of defaults that occuvr as this has a negative ripplve effect. Having a system in placve that helps to identify individvuals who pose a high credit vrisk will help stabilize and devvelop the industry.