Car finance or lease-to-own? Etihad Credit Bureau clarifies the difference

Abu Dhabi: Etihad Credit Bureau confirmed that all licensed financing institutions in the UAE check customers’ credit history before granting financing, stressing that a credit inquiry supports financing decisions by providing data to assess creditworthiness and reduce the risks associated with granting facilities beyond a customer’s ability to repay. The bureau stressed the need to distinguish between direct financing provided by banks and licensed finance companies for vehicle purchases and leasing programmes offered by some car companies, known as “lease-to-own”. It explained that licensed financing institutions conduct credit inquiries before granting products including car financing, personal loans and other forms of financing. Etihad Credit Bureau said a credit inquiry is an important step in assessing financing applications because it allows financing institutions to review available credit information about a customer, including existing financial obligations and payment history. This information helps institutions assess the customer’s ability to meet financial commitments before making a financing decision. Credit inquiries therefore support financing decisions by providing data that helps assess creditworthiness and reduce the risk of granting facilities beyond a customer’s ability to repay. The bureau added: “This step is particularly important in car financing, as with other types of financing, since credit information helps the financing institution to form a more comprehensive picture of the customer’s financial situation and their ability to bear new obligations in addition to their existing obligations.” It stressed the importance of distinguishing between direct financing provided by banks and licensed finance companies and lease-to-own programmes offered by some car companies. Under a lease-to-own programme, the customer pays monthly instalments to use the vehicle throughout the contract period, with the possibility of ownership being transferred at the end of the term in accordance with the agreed terms and conditions. The bureau said: “This arrangement differs from direct financing, whereby the customer obtains financing to purchase the car, and then pays the amount due according to a specific instalment schedule. The nature of the contractual relationship and the entity responsible for providing the product may vary according to the structure of the programme and the contract concluded.” It stressed the importance of checking the nature and terms of the product, including how payments are calculated, the customer’s obligations and the conditions for transferring ownership at the end of the term, as well as the regulatory requirements that apply to the entity providing the product. The bureau added: “A lease-to-own agreement is not a loan, but the financing entity can inquire if it is a subscriber to obtain credit products from the Etihad Credit Bureau.” It noted that many car dealerships check a person’s creditworthiness before granting financing. Etihad Credit Bureau said the role of credit information is not limited to the financing application stage. Access to credit reports can also enhance financial awareness by enabling customers to understand their existing obligations, monitor their payment history and verify the accuracy of recorded information. It added: “These practices contribute to supporting responsible financing and enhancing the efficiency of risk management in the financial sector, by relying on credit information that helps the financing institutions to study applications more comprehensively, taking into account the credit standards adopted by each institution.” The bureau advised customers to regularly monitor their credit reports, verify the accuracy of the information recorded and pay instalments on time, helping them maintain an accurate credit record that reflects their financial obligations and payment behaviour.