Lebanon Businessnews News

Car loans are smaller
in size and number
Upturn in used car imports
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The average size of car loans has decreased due to a shift towards smaller and cheaper cars and because of higher down payment requirements, reveals an article published in the October issue of Lebanon Opportunities magazine.

Car loans started to decline after reaching a peak in 2011, and they stood at $1.2 billion in April. Car loans account for 6.7 percent of retail banking loans.

Besides the economic slowdown, the main direct factors affecting car loans are the shift to purchase of cheaper and smaller new cars and the imposition of a minimum down payment of 25 percent by the Central Bank (BDL), which occurred in 2015. These two factors reduce the size of each loan and consequently of the entire car loan portfolio.

BDL's decision also made it hard for some segments of the market to buy cars, said Jocelyne Chahwan, Assistant General Manager, Head of Retail Banking at BLOM Bank. Car buyers must have enough cash for the 25-percent down payment and for the registration fees, she said.

Car loans are directly related to car sales. Sales of new passenger cars were growing at an average annual rate of 3.3 percent over the period 2012-2015, before starting to decline. Used car imports were declining at an annual average of 12 percent over the period 2011-2015 then surged 37 percent to nearly 44,000 cars in 2016. Elie Azzi, Chairman of the Syndicate of Used Car Importers, said that they reached an agreement with the Ministry of Finance in 2015 to ease stringent red tape concerning used cars and their pricing and that this was the main reason for the upturn in the number of imported used cars in 2016.

The fact that loans for new cars are subject to a lower interest rate than loans for used ones also plays a role in making the purchase of a new automobile more appealing. In addition to that, the down payment on a loan for a used car is sometimes higher than the down payment required in the case of new cars.

Stable interest rates over the last few years, fueled by fierce competition among banks, have, to some extent, prevented a sharper fall in car loans. “The number of banks entering the car loan market has significantly increased and has led to fierce competition, that is the reason why interest rates remained basically at the same levels in recent years,” said Youssef Eid, Assistant General Manager for Retail Banking and SMEs at BLC Bank. The perks are not confined to low interest rates, banks and car dealers often team up to create attractive offers in order to boost sales.
Reported by Shikrallah Nakhoul
Date Posted: Oct 05, 2017
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