🚗 Car loans in the UAE 2025: Rates, rules & smart tips
- Kacper Duda
- Oct 8
- 5 min read
If you’ve been in the UAE for a while, you’ll know that car ownership is much more popular than in other parts of the world. And since not everyone wants to (or can) pay upfront, car loans remain one of the most popular financing tools in the country for 60% of all car purchases.
While paying cash will always leave you better off financially, loans are fine as long as you understand how they work and what to look out for before signing. Whether you’re upgrading to a family SUV or buying your first used sedan, here’s what you need to know.
Read on to find out
The difference between car loans and dealer finance, and which one gives you better value
What actually drives your loan rate (and how to compare flat vs reducing)x`
Common “too good to be true” dealer offers to watch out for
In the news - UAE to introduce sugar tax in 2026
Car loan or car finance: what’s the difference?
In the UAE, car financing typically comes in two forms:
1. Car loan
You pay a deposit (usually a minimum of 20%) and borrow the rest from a bank. You own the car from day one, but the bank has a claim on it until the loan is repaid. The loan is repaid in monthly instalments over 2–5 years, and the bank’s name is listed on the car’s registration until you’re debt-free.
2. Car finance / lease
This option, usually offered directly by dealerships, lets you use the car without owning it. The dealer keeps ownership while you make fixed monthly payments, often inclusive of maintenance and insurance. When the term ends, you can return the car or buy it. But beware: the buyout price is set by the dealer and can be higher than the market value (i.e. you’ll lose money).
Leases are convenient but rarely the cheapest way to drive. If you want long-term value and eventual ownership, a car loan generally makes more financial sense.
Where do car loans come from?
Here’s a key detail most people miss: you can’t get a car loan from just any bank.
Dealers work with a list of approved or “listed” banks and your loan must come from one of them.
Insist that the dealer obtains quotes from at least 2–3 banks on their panel. Otherwise, they may push the one offering them the best commission, not necessarily the best deal for you.
Understanding car loan interest
Interest rates in the UAE are quoted in two main ways:
Flat rate: The rate applies to the original loan amount each year, regardless of how much you’ve already repaid. It looks lower but isn’t always the best comparison point.
Reducing balance rate: Used more widely internationally. Interest is applied to the outstanding balance, so the total cost declines over time.
To roughly convert a flat rate to a reducing balance rate, multiply it by 1.9 or better yet, ask the bank to show you both. Always compare on a reducing balance basis for a fair picture.
Rates on the move: What the Central Bank’s rate cuts mean
Last month, the Central Bank of the UAE (CBUAE) reduced its base rate by 25 basis points (0.25%), mirroring the U.S. Federal Reserve. Another cut is widely expected later this year as inflation pressures ease.
So what does this mean if you’re taking a car loan?
Existing loans: Most are on fixed rates, so your payments won’t change.
New loans: Banks may gradually lower their promotional rates in response, though don’t expect an instant drop across the board.
Timing your purchase: If you’re planning to buy later this year, it may be worth waiting for banks to adjust. A quarter-point drop may not sound like much, but on a 200,000 AED loan, it can mean savings of several hundred dirhams over time.
Deposit and repayments
By regulation, you must pay at least 20% of the car’s value as a deposit. You can increase it if you want smaller monthly payments and less interest overall.
Most people pay the deposit via credit card to earn cashback or air miles. Make sure you pay the card off in full the following month. If not, the interest on your card can quickly wipe out any gains.
Your monthly repayment will be fixed in your agreement and usually collected automatically from your salary account. If your salary is with the same bank, you might qualify for a slightly better rate.
Documents you’ll need
Most of the heavy lifting is handled by the dealer, but you’ll still need to provide:
Emirates ID
Salary certificate from your employer
3 months of bank statements or payslips
Signed loan agreement
(Sometimes) a security cheque for the loan value
Dealer “promotions” with strings attached
Watch for marketing offers that sound better than they are:
Low headline rates: Often apply only to UAE nationals or new cars. Expats and used car buyers will typically get higher actual rates. Also make sure you compare like-for-like reducing balance rates (flat rates will always appear lower!).
“Pay nothing until later” offers: This just delays your first repayment, extending the loan term and increasing overall interest.
0% deposit deals: The bank effectively gives you a second loan to cover the deposit. It’s still borrowing and it means more interest.
Fees and fine print to expect
Even without promotions, there are a few costs worth noting:
Arrangement fees: Usually around 1% of the car’s value.
Early settlement fee: Roughly 1% of the remaining balance if you want to repay early (for example, when selling your car).
Dealer extras: Tints, extended warranties, and service contracts are often bundled in. Some are worth considering, but insurance and accessories are almost always cheaper elsewhere.
Bottom line
Car loans in the UAE aren’t complicated once you know how the system works. The key is to shop around, compare on a reducing balance basis, and not get rushed by dealer promotions.
Take your time, understand the costs, and you’ll be driving away with the right car - and the right loan for your wallet.
IN THE NEWS – UAE to introduce sugar tax in 2026
Starting January 2026, the UAE will introduce a new sugar-based tax on soft drinks and juices. Instead of a flat rate across all beverages, the tax will now depend on how much sugar a drink contains.
This replaces the current system, where carbonated or sugary drinks are taxed at 50% and energy drinks at 100%, regardless of their sugar levels. Under the new model, lower-sugar options may become cheaper, while high-sugar drinks will cost more.
The goal is to nudge consumers toward healthier choices and encourage producers to redesign their products. You can read more in this Gulf News article.
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.
