Vehicle finance drops off in Qatar

Vehicle distributors maintain that since the fundamentals of the banking framework in Qatar remains strong, banks should “open up” again

Financing of vehicles, both new and used, is witnessing a drop in Qatar particularly because of the strict lending norms, industry sources have said.

They attributed buyers’ cautious approach to vehicle loans, coupled with stricter bank offers than they were in 2007, as the reasons for the downward trend.

“By December 2009, I was financing around 300 vehicles a month. Now the number averages 110 a month,” a car loan supervisor at a major bank said.

“The volumes are shrinking,” he added. According to another official supervising personal loans at a local bank, the financial institutions in the country have become “more cautious” after cases of delinquencies started arising last year forcing them to tighten their lending regime to mitigate risks.

“Some of the banks have ditched their car-loan programmes altogether,” he added, while adding that 2009 was a “slow year” compared to 2008.

The distributors, however, maintained that since the fundamentals of the banking framework in Qatar remained strong, banks should “open up” again.

“They remain conservative. From the industry perspective, yes, we would like the banks to open up,” marketing manager at one of the leading vehicle dealerships in Qatar said.

“The industry has slowed down compared to 2008 and the number of newcomers has dropped….Most of the people buying are those upgrading,” he added.

The prospective customers must bring in a slew of documents to prove their eligibility and worth in order to own a car. Most banks require car loan applicants to transfer their salary to them. From then on, it is differentiated on the basis of expatriate or local, private sector or government, confirmed employee or not.

A car loan applicant, after selecting the vehicle, will contact the bank, which will run credit tests, including the credibility of the applicant’s employer or their capital.

The dealership will issue a local purchase order (LPO) to the bank, and when the vehicle registration and insurance are ready, the bank will issue payment to the dealership.

Loans are repaid over a period ranging from one to five years (expatriates) and up to seven years (locals) at interest rates that generally start from 3.99% for new cars and 5% for used cars.

Most banks do not approve used cars older than three years. There are also minimum salary bars for applicants with a cap of the loan amount at QR350,000. “In-house financing is another option if a bank turns down a prospective client, but a local guarantor will be needed in that case.

However, the in-house financing is mostly used by dealerships in business-to-business transactions,” an official at a dealership said.

In a bid not to lose the customer, the dealerships often refer them to their sister companies offering vehicles on short and long-term leases. “This fulfils a new resident’s transport needs for a period during which they establish their bank history in Qatar,” the official said.

Meanwhile, to recover delinquencies, even the help of Interpol can be sought. “Banks generally encourage clients to put down as much as 20% down-payment when giving a car loan.

A vehicle, regardless of make and manufacture depreciates at the rate of 20% per year.

So if someone leaves the dues behind after a year, close to half of our money would have been recovered,” the car loan supervisor explained.

Banks also can move the Qatari courts, upon whose orders the vehicle is impounded and re-sold, while warrants are issued to Interpol to book the absconder, the official said.