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Of car loans and credit card debts: Somebody needs more than a slap on the wrist

Of car loans and credit card debts: Somebody needs more than a slap on the wrist

UAE’s new car financing regulation protects you from your own frivolity. But it looks like some banks want you to stay debt-ridden. Precious de Leon eyes the culprits.

July 31, 2011 2:49 by



Kipp remembers once seeing a poster that said “Don’t leave beyond your means.” That was a good two decades ago, at a time when most of us barely gave that message a second glance.

Oh how different our perspectives have become. Those words haunt every decision we’ve made post-recession. And finally, it seems, practicality is now winning over frivolity when it comes to purchase decisions. In the UAE, however, looks like banks are making sure people don’t get too practical about their finances—and unfortunately that’s not a hard task.

Let’s face it. A flashy lifestyle remains status quo in the UAE. And what better way to show off than with a flashy car.

But of course a flashy car comes with a flashy price. And that’s when the line between practicality and the need for status gratification gets more than a little blurry.

Recently, the UAE Central Bank has changed car financing regulations to help knock us into our senses. Among other things, it meant that car buyers had to pay 20 percent down payment for any car purchase. It also included a few more regulations including not being allowed to have a monthly loan payment that exceeds a certain percentage of your monthly salary. But let’s focus on the 20 percent down payment.

These new schemes have been put in place to prevent consumers from accumulating more debt that could potentially bring in a second wave of the recession.

BANKING ON SHORT-SIGHTEDNESS
Unfortunately, though there are some banks that are a little short sighted and are inadvertently aiding people to get into even deeper debt. How, you may ask. Well banks are encouraging potential car buyers to use personal loans and credit cards to pay for the 20 percent down payment.

How on earth does that make practical and financial sense? You’re covering debt with debt? Doesn’t that sound scary to you?

According to The National, these idio- uhm, financial trend is widespread already. And that’s just sad—sad that individuals haven’t learned their lesson and sad that none of the banks had the foresight to see that this short-sighted action may very well hurt them in the long run.

IF YOU WANT A JOB DONE WELL…
There are car companies, however, that are looking for alternatives. This Sunday, for example, Toyota announced a down payment solution that will see the car buyer work directly with Al Futtaim (which houses the Toyota brands) in spreading out the payments while still in keeping with Central Bank guidelines.

Although it remains unclear how the scheme will be rolled out across all Toyota ranges, the move indicates Toyota’s need for buyers to keep knocking on its door but making sure that those customers can get out of the car transaction unscathed.

But what about those banks? Is there no way that the Central Bank could reprimand companies found to be encouraging this potentially damaging financial trend? Then again, is it really the bank’s fault that the majority of us still ignore that 90s poster and



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