How to Get a Car Loan in Dubai: Important Tips to Know Before You Apply

Introduction

Buying a car is possible for almost anyone over 21 in Dubai. The key reason for this possibility can be the availability of various financing options, including car loans. A car loan is one of the most popular options for car buyers in Dubai. Car loans can cover the expenses of both brand-new cars and used ones. However, it is crucial to pick a bank wisely and understand the requirements and paperwork before you plan to get a car loan in Dubai.

This comprehensive guide will explain the process of getting a car loan in Dubai, the documents required to get a brand-new car or a used one, and the rules and regulations related to these loans in Dubai.

Why Getting a Car Loan Is Popular in Dubai?

A popular financing option for buying a car in Dubai is definitely a bank loan. In Dubai, banks offer competitive interest rates and flexible repayment terms to offer bank loans with higher convenience and affordability. Bank loans have become more popular in Dubai as they include lower interest rates compared to dealer financing and allow negotiating terms directly with the bank.

Key Factors to Consider Before Applying

Before choosing to apply for a car loan in Dubai, you need to consider the following factors to get a loan that best suits your needs and budget.

Understanding Eligibility Criteria

There are eligibility criteria that must be met to qualify you for a car loan in Dubai. These criteria may include factors such as

• At least 21 years old
• A regular salary of at least AED 3,000
• Valid Emirates ID card or UAE residency Visa

Here is a list of documents needed to apply for a car loan in Dubai:

• Salary certificate as proof of income
• valid passport document
• Valid UAE driver’s license
• 3 to 6 months’ bank statement
• Valuation certificate for the car
• Car insurance policy
• Car registration documents

Compare Car Loan Interest Rates

Various banks in Dubai offer car loans to their customers. It is highly important to compare the car loan interest rates to acquire the lowest rate. Most banks in Dubai provide up to %80 of the finance required to buy a car. The interest rate payable by the buyer, then, is calculated by multiplying the %80 of the car’s value by the interest rate announced by the concerned bank. The remaining %20 is a down payment made by the customer.

Types of Car Loans in Dubai

There are several options to finance your car in Dubai, including bank loans on new and used cars and applying for Islamic or conventional financing. Here are the details.

New vs. Used Cars

If you are considering financing your car in Dubai, you should note that banks often offer lower interest rates for new cars compared to used ones. Pre-owned cars, especially those more than 8 years old, usually come with higher financing rates. It is essential to consider a car’s age and loan terms carefully before applying for a car loan in Dubai to avoid unaffordable monthly payments.

Islamic vs. Conventional Financing

In conventional financing, loan repayment will include paying a rate of interest to the bank as their profit for lending the funds. The interest rate depends on loan terms. An Islamic mortgage, on the other hand, is under Shariah Law and it is forbidden to charge interest on a loan. In this case, banks will buy a property on the buyers’ behalf and rent or lease it back to the buyers for a profit. The profit is more reasonable and the repayments depend on the loan terms.

Hidden Costs and Charges

Although financing allows customers to purchase a car without paying the full amount upfront and spread the cost of purchase over time, it comes with hidden costs and charges. Here is a list of extra charges to consider when financing a car in Dubai.

Processing Fees

As mentioned earlier, financing a car in Dubai covers %80 of the total price of a car. Besides the interest, banks also charge a processing fee of %1 of the loan amount. Processing fees are charged for the time and effort required to provide the customer with a loan.

Early settlement Charges

Most banks in Dubai offer early settlement options that allow foreclosing a car loan by paying the balance in a lump sum. There could be an early settlement fee depending on the bank and the loan amount. The fee usually is calculated as %1.05 of the principal outstanding amount.

Insurance Requirements

Despite the mandatory guidelines for car insurance in Dubai, banks usually set additional insurance requirements for a financed car. It includes a comprehensive insurance plan for the duration of the loan term since the car is considered as the security for the car loan and it must be covered for any plausible.

How to Calculate the Total Cost of Ownership

The total cost of ownership in Dubai includes all the costs of operating and maintaining a vehicle. It usually includes the purchase price or lease payments, registration, insurance premiums, as well as charging and maintenance costs. It may start at AED 1,500 for a regular car and increase for luxury cars.

Credit Score and Loan Approval

The minimum credit score to get a loan in Dubai usually starts at 580 and most banks will accept a loan application if a credit score is 580 or higher. It is necessary to work on improving the score to get favorable loan terms. Here are the tips to improve your credit score:

• Paying Bills on Time: Bill history takes up %35 weightage of the credit score calculation. Paying all bills, including DEWA and SEWA, on time to improve your credit score.
• Credit Card Debts: How you use your credit card builds up about 30 of your credit score. Using your credit card responsibly and repaying your credit debts will increase your credit score.
• Credit History: Your credit history, includingany loans and credit instruments, impacts your credit score by %15. A longer history suggests you have fulfilled your responsibilities regarding your credit instruments.
• Credit Account Diversification: A diverse credit portfolio constitutes %10 of credit score. Having several well-managed credit instruments and accounts increases your credit score,

Down Payment and Repayment Terms

Since most banks in Dubai finance up to %80 of the car’s value, the remaining %20 must be paid by the customer as a down payment in advance. Banks either take the down payment or ask to settle the down payment directly to the car owner before financing the %80 amount. It is worth noting that there may be a minimum car financing amount that reaches AED 20,000. Therefore, the original price of the given car must be valued at a minimum of AED 25,000.

The repayment term of car loan interest rate is a crucial factor to consider, especially if monthly installments are considered. In Dubai, a car loan usually needs to be repaid within 12 to 60 months according to the loan terms. The repayment tenure directly depends on how old the car is. The repayment period for brand-new cars is often longer it can be much shorter for an old car. Notice that a longer loan payment duration means that you have to pay more interest to the bank. A shorter payment loan term, on the other hand, requires you to repay larger amounts to the bank every month. Thus, it is a necessity to check your monthly income and financial status before sealing and dealing with a bank. If you cannot keep up with loan repayments, the bank can possess your vehicle and call you liable for late fees and other charges.

Conclusion

Car loans have emerged as a powerful tool that empowers Dubai residents to own their favorite cars. To get the best car loans, it is essential to do planning and research, understand the nuances of these financial instruments, and explore various options available. If you are planning to finance your new car in Dubai, you will need to wisely keep a finance goal, improve your credit score, compare rates, and choose the best possible deal that matches your salary.

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