Introduction to the Car Loan Interest Rates in UAE
Buying a car is what most people hope to do at some point of time or the other. It is not just a matter of having something nice and comfortable to travel in, it is also about the convenience factor that the car comes with. With the rise in demand for cars, more and more people are turning to car loans to fund the car of their dreams and with banks offering loan amounts ranging from AED 500,000 to AED 1.5 million, there are very few restrictions on the car you can own. The one thing that can differentiate between a good car loan and a great one is the interest rate that the loan comes with.
Types of Car Loan Interest Rates in UAE
There are different types of car loans available in the UAE. They range from the conventional car loan, where the bank pays 80% of the amount and you pay 20% to the loan that allows you to take a loan under the rules of Islamic banking. There are also two types of interest rates that banks can charge. The first is the flat rate and the other is the reducing balance rate.
The flat rate is the rate that is charged for the entire duration of the loan, which can be as long as 60 months. The reducing balance interest rate, on the other hand, is the rate of interest applied to only the outstanding balance remaining on the loan. Another difference between the two is that the flat rate tends to be a little lesser than the reducing balance interest rate.
If you are interested in a new car loan, you can expect to get a loan from most international a domestic banks where you have to pay a down payment of 20% and the remaining 80% is paid by the bank. The interest charged for such a loan depends on the bank that offers you the loan. Mashreq Bank may charge you an interest rate of flat 2.35% per annum, which means that the interest rate will not change for the entire duration of the loan. On the other hand, a bank like HSBC Middle East Ltd. might offer you an interest rate of about 2.49% per annum. This too is flat rate loan and its equivalent value for a reducing balance interest rate would be about 4.74% per annum.
While almost all banks will provide funding for new cars, some banks also provide funding for used cars and commercial vehicles. In case of a used car loan, you can expect to be offered interest rates that could be about 3.75% per annum, in the case of HSBC and 4.72% per annum in case of the National Bank of Abu Dhabi.
Sometimes interest rates on car loans can also depend on conditions like salary transfers. For example, In the case of NBAD, for an individual whose salary is transferred to NBAD, the interest rate would be 4.72% per annum while without a salary transfer, the interest rate would be 5.62% per annum. With NBAD, there is also a separate interest rate for self-employed individuals. It is 7.45% per annum.
Apart from the conventional car loan, there is another car loan that you can take in the UAE. It is known as car Ijarah and does not actually charge any interest as it follows the rules of Islamic banking. Such a loan is available with banks like ADIB and Emirates Islamic Bank. Instead of an interest rate these banks charge a profit rate for the loan given. With this loan the bank purchases the car on your behalf and rents or leases it out to you for a fixed monthly payment for a certain period of time.
The advantage of BankBazaar is that with the information provided on our site, you can quickly, and efficiently, compare the car loans being offered by various banks. You can even compare the interest rates that these banks are offering and are enable to make a smarter decision about which loan suits your individual needs.
Frequently Asked Questions - FAQs
- What is Car Ijarah?
- What factors does the rate of interest on my car loan depend on?
- What is a flat interest rate?
- What is a reducing rate of interest?
- Are the rates of interest charged for new car loans the same as the rate of interest charged for used car loans?
Ijarah is the term used to describe Shariah compliant loans. A Car Ijarah or Auto Ijarah is a loan that is completely in compliance with the laws of Islamic banking.
The rates of interest charged on your car loan will depend on several factors such as the tenure of the loan, the loan repayment period and the kind of vehicle you are purchasing.
When a bank offers you a flat rate of interest, it means that the amount of interest charged will remain the same during the tenure of the loan. There will be no increase or decrease in the interest rate.
A reducing rate of interest loan is one in which the interest rate is only applied to the loan’s outstanding balance and not the entire amount you took out at the beginning.
No, there is usually a small difference in the rates of interest applicable to new cars and used cars. Used car loans are often sanctioned at an interest rate that is higher in comparison with a loan acquired to purchase a new vehicle.