Tareq Kowashk, professor of accounting at Jeddah's King Abdulaziz University (KAU), said that car dealerships and banks are entitled to get service charges for their sales or financing to buy vehicles under installments.
“However, this rate should be fair, reasonable, rational and well-suited to the market requirements. I am of the view that the percentage of service charge should be decided by the concerned monitoring agencies rather than leaving this to the choice of the companies or the financial institutions,” he said.
Kowashk lambasted the current practice of charging annual service charges on the basis of compounded interest and fixed rates as per the total value of the vehicles concerned.
“The commission should not be higher than 3.5 percent of the aggregate value of the vehicle and the rate should be reduced in accordance with the payments made by the client annually,” he said.
Saeed Al-Amoudi, official in charge of sales at a local bank, noted that local banks, financial firms and car dealers are eager to get clear guarantees from the clients more than the rate of commission.
“Most banks and car dealers are engaged in transactions based on leasing ending in ownership. In this type of transaction, the vehicle remains in the ownership of the company until payment of the last installment. In case of any default, the dealer or the financier has the right to recover the vehicle,” he said.
Farouq Al-Khateeb, professor of economics at KAU, criticized the attitude of car companies in charging compound service charges not less than eight percent in most cases.
“This is the major factor that has resulted in bringing down the purchasing power of Saudi consumers, as well as the rising number of old cars on roads,” he said.
Al-Khateeb proposed that a floating service charge should be calculated every year on the basis of the remaining amount of money to be paid by the client rather than charging fixed rates on the basis of the whole value of the vehicle.
“There should also be coordination between banks and car dealers to make payment of the installments through banks at reasonable service charges,” he added.
On his part, Bandar Al-Sulami, sales supervisor at a car dealership, said they offer limited and simple conditions that help the customer to buy car under the installment scheme, and these conditions include guarantee of an employee who is drawing a salary not less than that of the buyer.