In Saudi Arabia, if you want to buy a car, you generally have two main choices: taking out a standard personal loan (Personal Finance) to buy the car in cash, or signing a car financing agreement (often called "Auto Lease" or Tawarruq for cars).
While both get you a vehicle, they work very differently regarding ownership, costs, and flexibility.
1. Ownership and Control
This is the most critical difference between the two options.
Personal Loan:
Ownership: You own the car 100% from day one.
1 The registration (Istimara) is in your name.Selling: You can sell the car at any time without asking the bank.
Modifications: You can modify, paint, or upgrade the car as you wish.
Travel: You can drive across borders (e.g., to Bahrain or UAE) without needing permission from the bank.
Car Financing (Auto Lease):
Ownership: The bank owns the car.
2 You are merely a "driver" or lessee until the final payment is made.Selling: You cannot sell the car. To get out of the contract, you must either pay off the full balance or transfer the lease to someone else (which often involves fees).
Travel: You must request an official authorization letter from the bank to drive the car outside Saudi Arabia. This may expire and need renewal.
2. Eligibility and Limits
Banks look at your "Debt Burden Ratio" (DBR) for both, but the entry requirements differ.
Personal Loan:
Salary: Generally requires a minimum salary of SAR 3,000–5,000.
Loan Amount: Capped strictly by your salary (usually a maximum of 18-20 times your monthly salary).
Down Payment: None required.
Car Financing:
Salary: Often has more lenient salary requirements; some lenders accept salaries as low as SAR 2,500.
Loan Amount: You can often get a more expensive car than a personal loan would cover because the car itself acts as collateral.
Down Payment: A down payment (often 5% to 10%) is frequently required, though 0% offers exist.
3. Cost Breakdown
The "sticker price" of the interest rate can be misleading. You must look at the APR (Annual Percentage Rate) and the insurance costs.
Personal Loan:
Profit Rate: Typically lower (e.g., 2%–5% flat rate, depending on the bank).
Insurance: You buy your own insurance. This is usually cheaper because you can shop around for the best deal and choose your deductible.
Balloon Payment: None. You pay equal installments until it is finished.
Car Financing:
Profit Rate: The advertised rate might look low, but the APR is often higher because it includes full comprehensive insurance for the entire 5-year term.
Insurance: The bank chooses the insurance provider. The cost is built into your monthly payment, and it is often more expensive than what you could find on your own.
Balloon Payment: Most auto leases have a "Balloon Payment" (or Residual Value) at the end—often 25% to 40% of the car's price.
3 You must pay this lump sum to finally own the car.4
4. Risks and Liabilities
Personal Loan:
If the car is totaled in an accident, you still owe the bank the remainder of the loan. The insurance payout goes to you, and you use it to pay the bank.
Car Financing:
If the car is totaled, the insurance settles with the bank. You generally walk away debt-free, but you lose any equity or payments you made up to that point (unless the insurance payout exceeds the bank's book value, which is rare).
Summary Comparison Table
| Feature | Personal Loan | Car Financing (Lease) |
| Car Owner | You (immediately) | The Bank |
| Cash Discount | Yes (You pay dealer in cash) | No |
| Insurance | You choose (cheaper) | Bank chooses (fixed/pricier) |
| Balloon Payment | No | Yes (usually 25-40%) |
| Travel Abroad | No permission needed | Requires Auth Letter |
| Selling Car | Easy (Sell anytime) | Difficult (Must settle first) |
| Monthly Payment | Higher (since no balloon) | Lower (due to balloon) |
Which Should You Choose?
Choose a Personal Loan if: You want full freedom to sell or modify the car, you travel frequently across borders, or you want to negotiate a "cash price" discount at the dealership. It is generally the cheaper option overall.
Choose Car Financing if: You want a better car than your cash salary limit allows, you prefer lower monthly payments (by pushing cost to the balloon payment), or you plan to return the car to the bank after 3-5 years rather than keeping it.
