Understanding the basics of car financing in the UAE

Understanding the basics of car financing in the UAE

So you have been scanning the used car market for a while and after months of hunting for the perfect car you finally found one that ticks all your boxes and you fell in love. All that’s left to do is sort out your finances and pay for the car, that’s of course, assuming you’ve already had it inspected. There are two options when it comes to payment; paying the full price upfront in cash or financing the car via a bank and paying in installments over a period of time. For those who do not have the capital, the second option is the easier route to take.

With the auto loan interest rates being relatively low between 2.5% to 4% (compared to 5% in other countries), and people buying cars frequently, car financing is quite prevalent in the Emirates with 60% to 70% of car buyers opting for this route to car ownership. Here are a few things you need to consider before signing up to finance your new car:

Down payment

Banks only finance 80% of the car’s value, which means that a 20% down payment should be paid to the lender in advance. This amount is generally paid straight to the bank, although some banks require used car buyers to settle the down payment directly with the seller before the bank finances the remaining 80% of the car’s value.

Minimum amount 

Most banks in the UAE only provide financing over a certain amount, which is generally over AED 24,000. This means the minimum value of the car to be put up for financing should be AED 30,000, which yields an AED24,000 loan as banks finance 80% of the car’s price.

Monthly payments

The minimum salary requirements to be eligible for an auto loan vary from bank to bank, but they usually start from AED 5,000 to AED 8,000. The monthly loan installments of your used car cannot be higher than half of your salary and any other loans like credit cards. So, for example, if you earn AED 15,000 per month, your monthly auto loan installments cannot exceed AED 7,500 a month. However, if you already have any existing debt you’re paying, i.e. AED 3000 per month, that will be deducted from your monthly payment limit and you can’t pay more than AED 4,500 per month. Banks usually count 5% of your credit card limit as existing liabilities in the case of credit card loans. 

Loan tenure

The maximum tenure of a car can vary depending on its age. The maximum tenure allowed for cars up to 3 years old is 60 months, however, it is usually shorter for older cars

Documents required

When going to the bank to apply for a car loan you need to provide the lender with the following documents: 

  •  Valid passport and visa (for expatriates)
  • A valid passport and Idbara (for UAE nationals)
  •  Original Emirates ID
  •  Labour card or free zone ID (for free zone employees)
  •  A salary certificate with a validity of at least one month from the date of issue
  •  3-6 months bank statements showing proof of salary transfer (If you are self-employed, you should provide legal documents of your business, three months personal bank statement and six months company bank statements)
  •  UAE Driver’s license
  • Evaluation certificate (for used cars, but if seeking financing for a new car, you need to provide a quotation from the showroom)

Now that everything on car financing is clear, you can reach out to a lender on getting an auto loan. ProAssist offers support with providing evaluation certificates for car loan applications. dubizzle pro is also trusted as a ‘certified general evaluator’ by Emirates NBD, HSBC, and ADCB which is great for used car buyers looking to finance their next purchase as they will be eligible for exclusive lending rates on cars that have been inspected and evaluated by dubizzle.