How to get a car loan in the UAE: Eligibility, down payment and application steps

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:

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:

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:

For certified or used cars:

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

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:

The car now belongs to you, completely.