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Hide ExploreWhat is a Car Loan?
UAE has been experiencing a steady rise in the banking sector in recent times. With over 40 banks (domestic + foreign), customers have a range of options to choose from. Islamic banking, where banks cannot charge fixed interest either on loans or deposits, has been operational for at least three decades now. Also, with the Dirham being pegged to the USD, foreign banks play an important role in setting the interest rates. With a huge amount of expatriate population, banks in UAE take additional precautionary measures before sanctioning loans to reduce the possibility of an NPA (Non-Performing-Asset).
Features of a Car Loan
UAE is a region of cars. You can see the best cars from the world speeding right next to each other. UAE Nationals and expats are always on the lookout for high performance cars. That has led to a growth in the car loan market. Banks offer flexibility in choosing type of interest rate, amount and tenure. Here are some features of Car loans in UAE:
- Both UAE and Non-UAE Nationals can get a car loan.
- Long repayment tenures from 12-60 months.
- Flat and reducing balance interest rates available.
- 80%-100% of the car value can be availed as a loan.
- Car loans available for used cars too.
- Amount of car loan mar vary from AED 500,000 to AED 900,000.
What Types of Car Loans Are There?
There is a huge variety of car loans available in the UAE. Banks have tried to adapt to various preferences of customers looking to avail of a car loan. They are:
- Regular Car Loans: These are normal car loans where a customer applies for the loan, bank makes an offer and the customer pays it back in instalments.
- Interest free Period on Car Loans: Some banks offer an interest-free period on the car loan. This means that you will not have to pay any interest on the loan for a small period of time. This interest-free period can usually vary from a 12-60 months. After the end of this period interest will be applied. This is good for new car owners, as it helps them tide over the initial costs of owning a car.
- Islamic Car Loans: Car loans are also available under the Shariah laws of Islamic banking. They are also known as Car Ijarah.
- No down-payment: Some banks offer 100% of the cost of the car as a loan. They also let the customer include the cost of insurance in the loan amount.
- Used Car Loans: Most banks also offer car loans to customers for buying used cars. They might have a clause of the car not being older than a pre-specified number of years.
- Reducing balance: Many banks offer car loans with a reducing balance interest rate. In these loans, the first instalment is charged on the entire amount and from there the principal component keeps reducing and so does the interest.
Use our Car Loan Calculator to Calculate your Car Loan Installments.
Benefits of Car Loan
Apart from enabling you to buy your dream vehicle, a car loan comes with a host of added features and benefits. Some of them are:
- Many banks waive off the minimum/average balance requirement on checking accounts for customers who avail a car loan from them.
- Some banks offer car insurance at discounted rates along with the loan.
- Staggered Installment Plans (SIPs) are offered by few lenders. In SIP, the initial installments are low and they gradually increase over time.
- Some banks offer credit cards with the annual fees waived for one year.
Eligibility for Car Loan in UAE
Every bank has its own eligibility criteria which needs to be checked individually. However, some basic requirements are as follows:
- You must be at least 21 years of age. Some banks allow applicants over 18 years to apply too.
- Loans are available for both salaried and self-employed individuals.
- Each bank has its own minimum salary requirement for the application to be considered for a car loan.
- Most banks offer car loans to UAE Nationals and expats.
Documents required for Car Loan in UAE
As is the case with eligibility, every bank can have its own requirement of documents to process your loan application. Apart from the application form, some basic documents needed are:
Salaried Individuals:
- Passport copy with valid visa
- Driving License
- Salary Certificate
- Last six months original bank statements
Self-employed Individuals:
- Last six-months bank statements both personal and company
- Memorandum and articles of association / Partnership certificate
- Passport copy with valid visa
- Driving License
If you already have an account with the bank, then the number of documents needed might reduce. Please ensure that you arrange all the documents before submitting your application.
Car Loan Charges
There are different kinds of fees and charges associated with car loans and they can vary with each bank.
- Processing fee
- Instalment deferment charges
- Early settlement charges
- Charges for placement of mortgage on the vehicle.
- Charges for release of mortgage on the vehicle.
Again, it is important to note that these rates can vary and change from time to time. Please check with your loan provider before you apply for the loan.
What is Car Ijarah?
Under Shariah laws of Islamic banking, a bank can purchase a car on our behalf and then lease it to you for a monthly payment for a fixed period. Once the car is paid for, the bank transfers the vehicle in the customer’s name. It can be used to finance new and used cars and there is no interest charged. In case you miss a payment then the penalty paid by you is donated to charity.
Difference between Car Loan and Car Ijarah
Before you decide to finance your vehicle, here is an overview between Car loans and Car Ijarah:
| Car Loans | Car Ijarah |
|---|---|
| Usually around 80% of the car price is loaned | 100% of the car price is loaned |
| You might have to pay 20% as down payment | No down payment but a security deposit of 10-20% needs to be paid. |
| Penalty for late payments go to the bank | Penalty for late payments are donated to charity |
| UAE Nationals and Expats can avail | Usually available only to UAE Nationals |
| Reflects as a debt in your financial statements – taking another loan can be difficult | Does reflect in your financial statements – better chances of getting another loan |
| Usually on the car price is loaned | Car price and a comprehensive Takaful insurance is loaned |
As seen above, Car Ijarah is a better option provided you are eligible for it.
Car loans offered by majority banks
While car loans are offered by majority banks in the UAE, there are some banks which offer it as a priority product. They are:
Abu Dhabi Commercial Bank: ADCB finances up to 80% of the cost of the car, subject to a maximum loan amount of AED 500,000. The bank also provides options to finance car insurance along with quick processing and simple documentation.
First Gulf Bank: The First Gulf Bank offers car loans to its customers that can be paid back in tenures extending up to 5 years. It requires minimal documentation and, if all goes well, can do instant approval for the loans.
Dubai Islamic Bank: DIB offers car loans up to AED 1.5 million. The loan does not require that salary transfers to the bank and offers options to finance insurance for the cars. It is also available to corporates, in which case the loan amount can be as high as AED 5 million.
Emirates NBD: Emirates NBD offers car loans to residents of the UAE as well as expats working in the country. The bank offers loans with and without salary transfers. The loan amounts can go up to AED 300,000 and be paid back over a tenure of 60 months.
If you walk into your nearest dealership to choose a car, you will be greeted by a row of desks where salesmen will be waiting to sell their finance deal. Don’t get carried away by the moment and agree to sign on the dotted line with the first dealer in the line. Do your homework to ensure you have indeed secured the best car loan and that it fits within your budget.
Frequently Asked Questions
Q. How is EMI calculated on my Car Loan?
A. An Equated Monthly Instalment (EMI) includes both principal and interest. It is calculated based on the tenure of the loan. If you choose a longer term, the EMI would be smaller but you would end up paying more. A shorter term attracts a higher EMI but is financially beneficial.
It is advisable to talk to your bank to get a better understanding of the same.
Q. What documents do I have to submit after the loan has been sanctioned?
A. Every bank will have its own list of documents needs post sanctioning the loan. Some documents needed by most banks are original car papers, tax papers, insurance policy and registration certificate.
Q. Can I sell my car before the loan is repaid?
A. No. To sell your car you would need a NOC from the lender to legally transfer the car to someone else’s name. The car is the collateral for your loan.