Buying a car is quick and hassle-free in the UAE, with myriad options available across types of cars and their corresponding prices. A person living in the country needs a car for quicker mobility and convenience. There are a variety of car showrooms catering to every UAE resident’s demand for their dream car.
However, you may not have the requisite funds to pay for your dream car up front. It is mandatory to make a 20% down payment on your car in the UAE. But after this down payment is made, where will you procure the balance funds from? If you face a shortfall when buying your car, you can consider a financing option in the form of car loans.
What needs to be considered when taking car loans
When selecting a car loan, the most important element to analyse is the car loan interest rate. This must be compared across banks and financial institutions beforehand. If you are not sure how the interest rate will affect your total repayment, ask the bank to explain the calculation in writing. You may also use the bank’s online loan interest calculator to find out more about the repayment and calculation process. Normally banks and financial institutions may charge upwards of 8% interest on the car loan.
The car loan interest rates are charged subject to the rates being offered currently, applicant’s credit score, eligibility, other loans borrowed (apart from car loans) and repayment capacity. You have the freedom to take a car loan at a fixed or variable rate of interest, as per your handling of the finances. Experts opine that a variable rate of interest is better – the interest payment reduces progressively and you can take advantage of a drop in interest rates whenever possible.
Another factor to study is the loan processing turnaround time. You need a car loan that is processed quickly and with the minimum amount of paperwork. Conduct diligent research to find out the best banks and financial institutions in this regard.
Calculating the rate of interest
As mentioned earlier, you can take a car loan at a fixed or variable rate of interest. The rates in each category will differ for different lending institutions. When comparing car loan interest rates among banks and lending institutions, you must compare in the same categories of rates across different institutions.
The fixed rate is calculated over the entire tenure of the car loan, irrespective of the amount already repaid. In contrast, the loan interest is calculated basis the pending loan amount in the case of a variable loan. The interest amount is lower in the latter case.