What is the best method of buying a car in the UAE?
Bank loans
Let's start with a bank loan. This is often most people's first option – to approach their existing bank and ask for a loan to buy the car. 'Banks are often the most competitive financing option, particularly if the buyer has a strong credit profile (reputable employer, lengthy employment period, good income, limited liabilities and no history of defaults). Though it does take a scan to find the most attractive bank for the particular buyer,' said Imad Hammad, Founder and CEO of CarSwitch. Other finance experts agree.
But is it trickier when you are buying a second-hand car? 'In the UAE, car financing is predominantly driven by bank loans, particularly for second-hand vehicles, which constitute a rapidly expanding segment of the market,' said Neeraj Gupta, CEO at Policybazaar UAE. 'The growing second-hand car ecosystem has triggered a parallel rise in used car financing, with banks adapting to serve this segment more effectively.'
And how do Islamic financing options differ from conventional car loans when buying a vehicle in the UAE? From a consumer standpoint, Islamic and conventional financing are quite similar in terms of the customer journey. The key distinction lies in the requirement of Takaful (Islamic insurance) instead of conventional insurance. In Takaful, participants pool their contributions to mutually protect each other against loss or damage, based on ethical principles that align with Shariah. So the difference is largely structural rather than experiential.
Credit cards
An interesting recent trend is paying for the car with a credit card, especially those with interest-free periods, as an alternative to traditional financing. 'Sometimes it's used in conjunction with financing to cover the initial downpayment, other times it's to purchase directly from an end user who wants a cash deal (usually cheaper than buying from a dealership) especially for lower value cars,' explained Hammad.
This supports a more cost-conscious trend as buyers gravitate towards used cars, sold from private individuals for the best deal, and leverage credit cards to manage the payments.
Dealerships
Dealership financing and leasing are available and continue to gain traction, especially for new vehicles. However, consumers generally gravitate towards banks due to the competitive interest rates, structured tenures, and broader financing options they provide, according to finance experts. They warn buyers to look out for dealership financing offers that advertise zero per cent interest or no down payment.
'Financing deals that advertise zero per cent interest often include hidden costs, either in the form of inflated car prices or bundled insurance add-ons,' said Gupta. 'So, while the sticker offer may look cheaper, the total cost of ownership might be higher. Transparency in pricing and reading the fine print are essential to identifying the most economical choice.'
If you already own a car, one option may be to trade it in with the dealership, or sell it yourself privately on the numerous car-selling portals like Dubizzle, Carbuyingpeople and SellyAnyCar. Ask the dealer first what trade-in price they will offer and then compare it with what you'd get from a car-selling platform.
Credit scores
In the UAE, credit scores and employment status play a central role in car loan approvals and the applicable interest rate. A strong credit history with a consistent repayment track record can significantly increase approval chances and unlock preferential interest rates. Financial institutions rely heavily on the Etihad Credit Bureau (ECB) reports, and a poor score can either lead to higher rates or rejection. You can now get your credit score instantly on your phone by using the DubaiNow app, thanks to a partnership with the ECB.
The cheapest option?
The cheapest financing option depends on multiple factors - primarily your credit score, down payment capacity, and vehicle choice (new versus used). In many cases, a bank loan with a solid credit profile and a sizeable upfront down payment tends to be the most cost-effective route.
'For buyers with excellent credit history, some banks even offer promotional low-rate loans that are more affordable than dealership offers, especially when factoring in the actual vehicle value and long-term costs,' added Gupta.
And don't forget to compare insurance plans online before making a decision. Online platforms offer the ability to evaluate policies from multiple insurers, customise coverage based on individual needs, and avoid inflated premiums or unnecessary add-ons.
This level of transparency and flexibility is typically not always available when purchasing insurance through dealerships.
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