Friday, May 24, 2024
Money TalksOptions to access car loans

Options to access car loans

Having to face Addis Ababa’s morning rush hour should be one of the worst ways of starting one’s day. The long queues, the spars to find one’s way into a taxi and the subsequent arguments at the office following late arrival all drain the morning doze of energy we all depend on to get us throughout the day. It takes hours to get to the center of the city where most offices are located and people get exhausted in their daily pilgrims to the temples of their earthly lives – work places.  

Consequently, the days when cars were considered a luxury have passed for quite a time now. Middle class citizens strive to own cars, on top of other reasons, to avoid the daily hardships of commuting from home to their work place. Cars also help raise additional income, especially since taxi hailing services have proliferated in the city. Therefore, quite a sizeable group of people look for ways to access loans for purchasing cars.

However, banks in the country provide little, if any, loans for cars. Tesfaye Boru (PhD), President of Debub Global Bank, explains that all banks have providing car loans in their policies. He noted that the risk assessment parameters that restrict the provision of loans to cars that have not been in service for more than ten years, the association of consumer loans with salary and the salary limitations of a large section of those who demand the service are the constraining factors.

An expert at the loan section of Awash bank affirmed that they provide car loans throughout the year and the only time they suspend the service is during liquidity problems. The Reporter’s sources, however, indicate that the portfolio limit is quite impeding to serve a sizeable group of customers.

The loan expert further explains that the risk goes higher with the number of years cars have been in service. Therefore, it is not feasible for banks to provide loans for cars that have been in service for more than ten years. Down payment and interest also decrease when the age of cars gets younger. Depending on the saving history of the customer, their access to foreign currency and other factors, interest rates on loans could range from 7 -19 percent. Customers that have a good saving history and access to foreign currency get the loans at 7 percent interest while those that are considered more risky might end up shouldering up to 19 percent interests.

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The narrow space for individuals to access bank loans in purchasing cars has, however, provided the chance for agents to bridge the gap. Different kinds of companies broker between banks and potential customers to ensure that both sides get the best out of the transaction.

One of the companies that provide long term payment scheme for private and commercial cars is Hello Mekina. The company supplies two kinds of cars: Suzuki Dzire and Suzuki Ertiga. Dzire costs 1.3 million birr while Ertiga is sold for 2.4 million birr. Hello Mekina refers its clients to Debub Global Bank for the loans as the two companies have a deal in place to work jointly. Clients would be eligible for the bank loan up on payment of 30 percent down payment on the car of their preference (390,000 birr for Dzire and 720,900 birr for Eritga) plus a 100 thousand birr service charge for the Dzire and 150 thousand birr service fee for Ertiga. Half of the service charge would be paid along with the down payment while the payment would be completed when the buyer receives the car. Buyers access the loans at 14.5 percent interest and they are expected to pay the loan back in seven years. That means they are required to pay 17,305.75 birr on a monthly basis for the Dzire and 31,989.01 birr for the Ertiga.

Those who want the car for private use would wait for six months before they receive the car as their payment trends need to be assessed within that time by the bank. Clients that need the car for commercial use would receive it in two months as their early venture into business is expected to boost their chances of raising the money required to pay their monthly dues.

Tesfaye (PhD) underscored that the reason for Debub Global bank to sign a deal with Hello Mekina is because the latter serves its goals of collecting money and promoting itself. As the company brings customers who are required to make deposits, the amount of money collected goes up. The fact that commercial cars (taxis) would be required to bear the bank’s advertisement also serves the bank’s interests to promote itself.  

Five star cab transport is another company providing customers with a chance to own meter taxis. Unlike Hello Mekina, five star supplies only taxis and not cars for private use. Tefera,   owner and manager of the company, stated that they currently provide Sangham cars. He said that customers pay from 20-50 percent of the total price of the car as down payment and pay the rest within 3-5 years.

A source who bought a Sangham car from the company and spoke to The Reporter on condition of anonymity stated that the car is valued at 790,000 birr and he paid 350,000 birr in three installments over a period of one and a half years before he received the car. The source indicated that they pay 13,330 birr a month to service the debt that includes 18 percent interest. According to the source, over one thousand birr of the 13,330 birr they pay annually is for service charge to five star cab transport.  

Micro-finance institutions are perhaps the best option to buy cars for private use and for commercial purposes. The main shift here is that they provide loan to individual customers with less of a fuss. Borrowers are not, for instance, necessarily required to have a saving history with the micro-finance institution.

Dawit Waqgari, CEO of Nisir Micro-finance, states: “we readily provide loans for cars.” Nisir provides 50 percent of the car’s value in loan and holds the car as moving collateral. The CEO also explained that they provide loans to cars based on the condition the car is in rather than putting a fixed limit on the manufacturing date. However, he clarified we prefer cars manufactured since the year 2000 G.C. Nisir considers both salary and proceeds from commercial activities as sources of repaying the loans that need to be paid within up to three years. The catch is that borrowers are expected to save 5 percent of the loan provided by the micro-finance that loans a maximum of 750,000 birr.

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