How To Buy A Car On Loan/Finance — Tips & Best Practices

Buying a car on loan or finance is a significant financial decision that requires careful planning and consideration. Whether purchasing a new or used vehicle, understanding best practices can help you save money, avoid unnecessary debt, and make an informed choice. 

A well-structured approach to car financing ensures affordability, minimizes financial risk, and helps in long-term financial stability. 

Before diving into car loan best practices, consider these fundamental financial rules to guide your car purchase:

This rule ensures that you do not overspend on a car. Pay at least 20% down to reduce the loan burden, finance the car for a maximum of 4 years to control interest payments, and keep total car-related expenses — including loan repayments, fuel, maintenance, and insurance — below 10% of your monthly income to maintain financial balance.

To maintain financial stability, the price of the car you purchase should not exceed 50% of your annual income. This rule helps prevent over-committing financially and ensures that you have enough income left for savings and other essential expenses.

Opt for a car that you can comfortably use for at least 10 years. This strategy maximizes the vehicle’s value and minimizes depreciation losses. It is particularly effective for buyers who want to make the most of their investment and reduce frequent car replacement costs.

This general budgeting guideline suggests allocating 50% of income to essential expenses (including rent, food, and car payments), 30% to discretionary spending, and 20% to savings or debt repayment. Following this rule ensures that car ownership does not disrupt your overall financial health.

Lenders often use this rule to determine loan eligibility. Your total monthly debt obligations—including mortgage, credit cards, and car loans—should not exceed 36% of your gross monthly income. Staying within this threshold ensures you can manage your finances comfortably while repaying your car loan.

Following these rules ensures that you remain financially stable while enjoying your car ownership experience. Sticking to these principles will help you make an informed decision and avoid unnecessary financial strain.

Before taking out a car loan, you must first evaluate your financial situation and determine how much you can afford. Setting a realistic budget will prevent financial strain in the long run.

Car loans come with different types of interest structures, and choosing the right one can significantly impact your overall loan repayment.

If you are looking for a car loan, the source will depend on where you are buying the vehicle:

If you are purchasing a car from an individual, your best option is to get financing directly from your bank. Banks offer personal auto loans and may provide pre-approved car loans if you have an existing relationship with them.

Many car dealerships have tie-ups with banks and finance companies, making it easier to get a loan directly through them. Dealers often have exclusive promotions such as zero down payment options, lower interest rates, or bundled insurance. However, while convenient, the interest rates may be slightly higher than directly going through a bank.

If purchasing a new car from a manufacturer, most OEMs offer integrated loan facilities through their financing arms or partnered banks. These loans often come with special deals, extended warranty packages, or service benefits.

Banks may not finance older used cars (typically those over five years old). In this case, you may need to opt for a personal loan instead of a car loan, which generally comes with a higher interest rate but does not require car mortgage conditions.

Here is how you can get the best loan interests for cars in the UAE.

Now that you have an idea about how to choose the right car, find used cars for sale in the UAE and new cars for sale in the UAE.

Not all loan offers are the same. It is crucial to explore different financing options and negotiate terms to ensure you get the best deal.

A larger down payment means a lower loan amount, reducing your overall financial burden. Consider these best practices:

The loan tenure impacts both the EMI amount and the total interest cost. Striking the right balance is key:

Your credit score plays a vital role in loan approval and interest rates. A high credit score ensures better financing terms. Clear any outstanding debts and pay bills on time before applying for a car loan. A strong credit history improves bargaining power when negotiating loan terms. 

RTA has launched a new online service for car loans in the UAE, which will help with easy clearance. 

Never accept the first loan offer without attempting to negotiate better terms. Strategies include:

Many borrowers overlook the fine print of their loan agreements, leading to unexpected costs. Carefully review:

Some cars hold their value better than others, which is crucial if you plan to sell the vehicle later. When financing a car, consider:

Here is how you can sell your car under finance.

Buying a car on loan is a practical solution when managed wisely. By carefully assessing your budget, comparing loan options, negotiating better terms, and considering resale value, you can make a financially sound decision. 

Avoid overextending yourself and focus on affordability to ensure a stress-free ownership experience. With proper planning, you can drive your dream car without compromising your financial health. Happy car shopping!