Dubai: Buying a car is an important milestone for most individuals. Fortunately, the UAE gives residents access to a broad selection of not just vehicles, but also flexible auto financing options that let you own your dream car, without the burden of paying the entire cost up-front.

The process of acquiring a car loan is straightforward, but requires some preparation before you’re ready to sign the papers.

Here’s what you need to know when applying for a car loan in the UAE:

Rules and regulations

The Central Bank of UAE (CBUAE) regulates car loans via its Regulation No. 29/2011 — Regulation Regarding Bank Loans and Other Services Offered to Individual Customers. It outlines the following legislations regarding car loans extended by banks or finance companies to customers:

Car loans are treated as separate from personal consumer loans, and must not exceed 80% of the value of the financed vehicle.
The maximum period for repayment of the loan must be 60 months.
The loan should be secured by a mortgage over the car.
The total monthly debt repayments cannot exceed 50% of your gross salary and regular income.
The loan can be extended, based on an application by the customer and approved by the bank or the finance company.
Early settlement is capped at 1% of the outstanding balance, or Dh10,000, whichever is less.
The conditions for granting a car loan must be included in a standard agreement, drafted in both Arabic and English, and written in an easily readable font, in accordance with texts drafted and approved by the Emirates Banks Association.

How do car loans work?

According to Al Futtaim Automall car loans typically extend from 12 to 60 months for new cars. When it comes to used vehicles, banks will usually have shorter repayment periods and may have vehicle age restrictions in place.

While auto loans work similarly to personal loans, in that they involve the bank lending money to a borrower, and receiving monthly instalments over an agreed-upon period of time, there are certain additional considerations applicants must be aware of.

Down payment: Under Article 3 of CBUAE Regulation 29/2011 (Car Loan), a car loan cannot exceed 80% of the vehicle’s value. This means the remaining 20% must come from the applicant in the form of a down payment – a condition that applies to new cars.

For used or old cars, which face faster depreciation, individual banks reduce this loan-to-value (LTV) percentage to 70%, which means you would need to provide a 30% down payment.

Vehicle age limit: Vehicle age caps may also apply, based on your bank. Many financial institutions, like RAKBank and Mashreq, do not finance cars older than five to seven years at the time of purchase, with the vehicle’s total age at the time of loan maturity usually capped at 8 to 10 years. EmiratesNBD, on the other hand, finances used cars up to 12 years old.

Eligibility criteria

In order to apply for a car loan in the UAE, applicants must meet certain key criteria established by lending institutions and banks. These criteria might vary based on the bank, so it’s best to check with them personally, before applying. Here are the standard requirements, based on bank websites in the UAE:

Minimum age: Applicants must be at least 21 years old to apply, although some banks set a minimum age limit of 18. The maximum age is 60 (for expats) and 65 (for UAE citizens) at the time of loan maturity.
Salary requirement: Banks require applicants to have a minimum salary ranging from Dh5,000 to Dh8,000 per month, depending on the financial institution. If you’re buying a used car, the salary requirement may be lower, at Dh3,000.
Credit score: The applicant must have a good credit score. UAE residents’ credit score is a three-digit number between 300 and 900 that indicates your creditworthiness. The Al Etihad Credit Bureau (AECB) classifies a score of 700 and above as ‘good’; this shows you have made bill payments on time, and been on top of your credit card expenses. Banks will require a credit report to check your credit history, and to assess if there are any other active loans under your name, before authorising your car loan.

Documents required

When applying for a loan for a new car, you may be asked to supply slightly different documentation than if you were buying a used car, based on the bank’s requirements. Here are the standard documents that are typically required, according to Abu Dhabi Commercial Bank:

For new cars:

Valid passport with valid UAE residence visa
Emirates ID
Valid driving licence
Salary certificate
Three-month (or in some cases, six-month) bank statements for your salary account. This is not usually required if your salary is already being transferred to the same bank.
Security cheque
A quotation or pro-forma invoice from the dealer for new vehicles

For certified or used cars:

Aside from the above documents, you may be required to provide these additional documents to the bank:

A valuation certificate issued by an approved dealer
An ownership title
A quotation or offer to sell to the bank from the current vehicle owner

How to apply for a car loan

Once you have understood the regulations, ensured your eligibility, gathered the requisite documents, it’s time to apply for a car loan.

Here are the steps to follow:

Step 1: Get pre-approved

Visit the car dealership, your selected bank’s branch in-person, or the bank’s website, and submit your documents package to request a pre-approval in principle. This gives you a conditional approved amount, interest rate, and tenure. Pre-approvals are typically valid for 30 to 60 days, according to Al Futtaim Automall.

Step 2: Get the car quotation

Once you have received your pre-approval, finalise the specific car, and obtain relevant information, such as its make, model, year, and VIN (vehicle identification number). Obtain a formal quotation or pro-forma invoice from the dealer, if the car is new. The pro-forma invoice is a preliminary bill sent by a seller to a buyer before a sale or delivery is finalised. In the case of used cars, a valuation from a bank-approved source is adequate.

Step 3: Shop around for car insurance

After pre-approval, shop around for car insurance. Auto insurance is mandatory for financed vehicles, and the bank will only release funds once they receive an insurance policy naming the bank as the loss payee. According to the Roads and Transport Authority (RTA), driving without car insurance incurs a fine of Dh500 in Dubai, as well as four black points on the driving licence. The car may even be impounded for seven days.

Typically, you can apply for one of two kinds of insurance: comprehensive or third-party. Comprehensive insurance covers the driver and the other cars in case of an accident, while third-party coverage insures only the other car and passengers. Although third-party coverage is generally cheaper, the policyholder must pay for all damage to their own vehicle if they cause an accident. Insurance policies are valid for 12 months.

Step 4: Sign the loan agreement

Once you provide the formal quotation to the bank, the bank will issue the final loan agreement, which you can sign, along with the security cheque and disclosures. The bank will then disburse the loan amount directly to the car dealer or seller.

Step 5: Register your car

The vehicle is now registered in your name under the Roads and Transport Authority (RTA), if you are based in Dubai, with a bank-held mortgage noted on the Mulkiya or vehicle registration card. The bank has the right to hold the Mulkiya until the loan is fully repaid, after which the mortgage is released.

In other emirates, similar registration processes are conducted by the relevant local authorities, such as TAMM in Abu Dhabi, and Tasjeel in Sharjah.

It’s worth noting that unpaid traffic fines can block both initial registration and subsequent renewal of the Mulkiya, which in turn affects insurance and loan compliance – so ensure all your fines have been paid before applying for a car loan.

What happens when I’ve paid off my car loan?

When you have paid back your loan in full, you can apply for a mortgage release on your car. This service is usually free of cost. EmiratesNBD outlines the following steps to get a mortgage release. The process is the same across most banks in the UAE:

First, apply for mortgage release by visiting your bank’s website or going in-person to a branch, with your vehicle Mulkiya and Emirates ID.
If you are applying via the bank’s website, navigate to ‘Auto loan release request’. Click ‘Start your request’.
Next, enter your auto loan agreement ID or your 20-digit auto loan account number, along with your registered mobile number.
Upload scanned copies of the required documents: your vehicle’s Mulkiya and Emirates ID.
You will receive a response from the bank within three working days. If your payments have been cleared, the bank will send release your mortgage, and send an electronic No Objection Certificate (NOC) or clearance letter to both you and the traffic authorities.

The car now belongs to you, completely.

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