🚙 Car Loans in the UAE: Everything You Need to Know (2025 Guide)

Kacper Duda
May 14
4 min read

Buying a car in the UAE? You’re not alone — and chances are, you’re not paying for it all upfront.

Over 60% of car purchases in the UAE are financed through loans. That’s not a bad thing, but you need to understand the rules of the game before you sign.

Whether you’re eyeing a new sedan or a second-hand SUV, this guide walks you through how car loans work here — and how to avoid paying more than you should. Read on to find out:

The difference between car loans and car finance — and why it matters
What dealers might not tell you when arranging your loan (cue: hidden fees)
In the news: How missed payments can damage your credit score

Car loan or car finance: what’s the difference?

There are two main ways people finance a car in the UAE:

Car loan - You pay a deposit (usually 20%) and borrow the rest from a bank. You’re the owner of the car from the start, but the bank has a claim on it until the loan is repaid. Repayments are made monthly over an agreed term (typically 2–5 years).
Car finance / lease - Mostly available through dealerships, this option lets you use the car without owning it. The dealer remains the owner, and you make monthly payments for a fixed period. Insurance and maintenance are often included. At the end of the lease, you can choose to return the car or buy it — but the buy-out price is set by the dealer and may be above the car’s actual value (so be mindful of potentially losing money there).

Where do I get a car loan from?

Here’s where it gets a little more complicated. You can’t just walk into any UAE bank offering car loans. Dealers (whether new or used) only work with a list of approved banks — and your loan must come from one of those.

Make sure the dealer gets quotes from at least 2–3 of their listed banks. Otherwise, you may be steered toward whichever bank offers the dealer the best commission — not the one with the best rate for you.

Understanding car loan interest

Interest rates in the UAE are usually quoted in one of two ways:

Flat rate – This is what you’ll see most often advertised. It applies the same percentage rate to the original loan amount for every year of the loan, regardless of how much you’ve repaid.
Reducing balance rate (or “real rate”) – This is more common internationally. As you repay your loan, with each instalment the balance reduces and this rate is applied to the remainder. To roughly convert a flat rate to a reducing balance rate, multiply it by 1.9 — or better yet, ask the bank to give you both.

What interest rate will I get?

There are a number of factors that the bank will look at to decide what interest rate they are willing to offer you (it's always tailored to your personal situation):

New vs. used car (better rates offered on new, or nearly new cars).
Your credit score and credit history (more on this in the "in the news" section below).
Employed by a company "listed" with the bank. Listed simply means the bank has performed its due diligence on the company and recognises it as in good standing.
Salary transfer account with the same bank. This will be seen as extra security, which usually means better rates.

How much deposit do you need?

The standard deposit is 20% of the car’s value, and it’s usually paid directly to the dealer. You may choose to increase that, therefore lowering your monthly repayments and the amount of interest you pay overall.

Many people choose to pay the deposit by credit card to earn cashback or points — just make sure you can repay it in full the following month to avoid interest charges.

Dealer "promotions" with strings attached

Low advertised interest rates - These often apply only to UAE nationals or new car purchases. Expats or second-hand buyers usually get a different (higher) rate once the paperwork begins.
"Pay nothing until later in the year" - Delaying your first repayment usually just extends the loan term and increases your monthly instalments later.
0% deposit offers - You’re not skipping the deposit — the bank is just giving you an extra loan to cover it. That means more borrowing and more interest.

What to be mindful of

Even without flashy promotions, there are a few common pitfalls to be aware of:

Dealer upsells - Many will offer to include extras like tints, extended warranties, or insurance in the loan. Some — like service contracts — may be worth considering, but you can often get better deals elsewhere.
Early settlement fees - If you plan to sell your car or repay early, expect to pay around 1% of the outstanding loan balance as a penalty.
Arrangement fees - These are standard with car loans in the UAE and usually come to around 1% of the car's value. Factor it into your upfront costs.

Car loans aren’t complicated — once you know how the system works. Take your time, ask questions, and don’t let the dealer rush you.

IN THE NEWS: How missed payments can damage your credit score

As the financial landscape matures in the UAE, more and more companies start reporting payments to the Al Etihad Credit Bureau (AECB). That's the agency that controls all credit scores in the UAE (read our explainer on how credit scores work here).

Gulf News recently outlined what types of payments get reported and which ones can impact your credit score if you miss them. Their article also covers tips on improving your score.

Disclaimer: Please bear in mind that this email does not constitute financial advice. Any choices you make you are solely responsible for. We always aim to provide highest quality, independent views but do your own research to ensure you’re comfortable with any changes you make to your personal finances.