Car Finance vs. Buying Used with a Small Loan in the UAE is more than just a financial decision it’s often a necessity.
With limited public transportation options outside major cities like Dubai and Abu Dhabi, owning a car is essential for most residents.
But how you pay for your car can have a huge impact on your finances. In the UAE, the two most common ways to own a car are:
- Car finance (bank financing for a new or nearly new car)
- Buying a used car with a small personal loan
Each method has unique advantages and hidden costs. This article will provide a total cost breakdown, supported by UAE-specific insights, so you can make a smarter decision.
1. Initial Costs
Car Finance (New Car): UAE banks typically require a 20% down payment on new vehicles, as per Central Bank regulations. For example, if you buy a car worth AED 100,000, you’ll need AED 20,000 upfront. Registration and insurance costs are also higher for new cars.
Used Car + Small Loan: Down payments are lower or sometimes negotiable. Since used cars are cheaper, the initial outlay is smaller. Insurance is also significantly less because the vehicle’s value is reduced.
2. Monthly Payments
Car Finance: Bank rates in the UAE can be as low as 1.89%–3.99% (flat rate) depending on the bank, salary transfer, and credit profile. However, because the loan amount is higher, monthly installments can still be substantial.
Used Car + Loan: Personal loan rates are usually 5%–7% annually, but the borrowed amount is smaller. This often results in lighter monthly payments, even if the interest rate is higher.
3. Depreciation
New Car via Finance: New cars in the UAE lose 20–30% of their value in the first year and continue to depreciate quickly. After 5 years, resale value can drop by almost half.
Used Car + Loan: The steepest depreciation has already occurred, so you won’t lose as much value. Resale values are often more stable.
4. Insurance & Maintenance
Car Finance (New Car): Comprehensive insurance is mandatory in the UAE for financed cars, and premiums are high for new vehicles. The upside is that many dealers include free servicing for the first few years.
Used Car + Loan: Insurance is cheaper, sometimes half the cost compared to new. On the flip side, maintenance can be more frequent and expensive, especially for older models. Extended warranties may or may not be available.
5. Example Breakdown in AED
Let’s say you want a car worth AED 100,000 (new) vs. AED 40,000 (used).
| Factor | Car Finance (New Car) | Used Car + Small Loan |
|---|---|---|
| Down Payment | AED 20,000 (20%) | AED 5,000–8,000 |
| Loan Amount | AED 80,000 | AED 32,000–35,000 |
| Average Rate | 3% flat | 6% reducing |
| Monthly Installment (5 yrs) | ~AED 1,400 | ~AED 650–700 |
| Depreciation (5 yrs) | -AED 50,000 | -AED 15,000 |
| Insurance (per year) | AED 4,000–5,000 | AED 1,500–2,500 |
6. Total Cost Example (AED Breakdown)
| Factor | Car Finance (New Car, AED 100,000) | Used Car + Loan (AED 40,000) |
|---|---|---|
| Down Payment | AED 20,000 | AED 6,000 |
| Loan Amount | AED 80,000 | AED 32,000 |
| Loan Interest | AED 12,000–14,000 | AED 5,500–7,000 |
| Depreciation (5 yrs) | -AED 50,000 | -AED 15,000 |
| Insurance (5 yrs) | ~AED 22,500 | ~AED 10,000 |
| Maintenance (5 yrs) | ~AED 10,000 (low) | ~AED 20,000 (higher) |
| Total Cost | ~AED 134,500 | ~AED 68,000 |
7. Beyond the Numbers: Lifestyle Considerations
Car Finance (New Car):
- Best for professionals with stable income who value status, comfort, and warranty coverage.
- Easier to qualify if you transfer salary to a UAE bank.
- Resale value drops, but you enjoy peace of mind.
Used Car + Small Loan:
- Perfect for budget-conscious expats and families.
- Lower financial pressure, especially if you’re unsure how long you’ll stay in the UAE.
- Flexibility: you can upgrade sooner without worrying about high depreciation.
8. Alternatives in the UAE
- Leasing: Pay monthly, no ownership. Great for short-term expats.
- Islamic Car Finance: Sharia-compliant options where the bank technically buys the car and leases it back to you.
- Dealer Promotions: Zero-down-payment or “buy now, pay later” campaigns, especially around Ramadan.
Conclusion
Both options car finance and buying used with a small loan are popular in the UAE. Financing a new car comes with higher upfront and monthly costs but provides reliability and comfort.
Buying used with a smaller loan reduces your overall expenses and depreciation but may require higher maintenance.
Tip for UAE buyers: Use a UAE car loan calculator to estimate your payments in AED, compare offers from banks, and check platforms like YallaMotor or CARS24 for competitive used car financing options.