Early settlement of a car loan in the UAE: fees and steps

You can pay off a UAE car loan before the end of its term. The Central Bank of the UAE caps the early settlement fee at 1% of the outstanding amount, before VAT, and the lender may not charge for the NOC to the traffic department. Once you have paid, the lender releases its mortgage on the car so that it can be removed from the vehicle record.

Key takeaways

• The early settlement fee on a car loan is capped at 1% of the outstanding amount, before VAT; the fee table sets no AED ceiling for car loans.
• Paying an instalment in advance costs at most 1% of that instalment, before VAT.
• The NOC to the traffic department is free, and a liability letter to another bank costs at most AED 60 before VAT.
• After a full settlement no future interest may be charged, and your remaining post-dated cheques must come back within 7 complete business days.
• In Dubai the mortgage is redeemed at the bank and RTA reissues the ownership document; in Abu Dhabi the release is a service on TAMM.

These rules cover car loans from banks and finance companies licensed by the Central Bank, conventional and Islamic. The limits on a new loan are in car loan rules and eligibility, and the rest of the topic is in our Car loan guides.

What settling a car loan early can cost

Settling a car loan in full costs a fee of at most 1% of the outstanding amount, plus VAT on the fee. The Central Bank’s fee table gives no AED ceiling for it.

Maximum early settlement fee, car loans

1% of outstanding

The early settlement fee on a car loan is capped at 1% of the outstanding amount.

The car loan rows of Appendix 2 of Regulation 29/2011 cap four charges that can apply when you finish a loan early:

All these caps exclude VAT, which is charged at the standard rate of 5% (Ministry of Finance). They are maximums: the Central Bank says lenders should not default to the cap where their actual costs are lower, and a lender may not charge a fee that is not in the table without the Central Bank’s written approval.

Personal and home loan settlement fees stop at AED 10,000; the car loan row gives a percentage only. In practice the difference appears only above AED 1,000,000 outstanding, where 1% passes AED 10,000.

Full settlement or paying part early

A full settlement ends the interest: the lender may not charge interest for the months you no longer borrow. A part payment reduces the interest in proportion to the principal left, but the fee rule for it is less clear.

Interest after an early settlement

No compounding

Lenders may not charge interest or profit on accrued interest on any consumer credit product, and may not charge future unearned interest after a loan is fully settled early; after a partial early settlement, interest must be adjusted to the remaining principal.

The car loan rows name early settlement and the advance payment of an instalment, but have no separate line for a partial settlement, unlike the rows for personal and home loans. Before you pay a lump sum off part of the balance, ask the lender which line it applies, what the fee comes to and whether it will lower your instalment or shorten the term. Get the answers in writing.

Paying ahead is different from settling: you pay an instalment before it falls due, and the fee is capped on that instalment, not on the balance.

Maximum fee for paying an instalment in advance

1% of the instalment

The fee for paying a car loan instalment in advance is capped at 1% of the instalment.

Worked example: settling a car loan after two years

On the illustrative loan below, settling after 24 of 60 instalments costs at most AED 533.81 in fee and VAT and saves AED 4,839.36 in interest.

Worked example

AED 80,000 car loan at 6% over 60 months, settled after 24 instalments

The loan amount, the 6% reducing rate and the timing are illustrations, not market figures.

1. Monthly instalment on AED 80,000 at 6% a year over 60 months: AED 1,546.62.
2. Balance still owed after 24 instalments: AED 50,839.11.
3. The 36 instalments left would total 36 × AED 1,546.6241 (the instalment before rounding) = AED 55,678.47.
4. Interest no longer charged: AED 55,678.47 less AED 50,839.11 = AED 4,839.36.
5. Maximum fee: 1% × AED 50,839.11 = AED 508.39.
6. VAT on the fee: 5% × AED 508.39 = AED 25.42.
7. Amount to pay: AED 50,839.11 + AED 508.39 + AED 25.42 = AED 51,372.92, plus any interest since the last instalment.
8. Interest saved less fee and VAT: AED 4,839.36 less AED 533.81 = AED 4,305.55.

Settling early costs this borrower AED 4,305.55 less in interest and fees than paying the loan to the end.

For contrast, paying one instalment in advance costs at most 1% × AED 1,546.62 = AED 15.47, plus AED 0.77 VAT.

Here is the same loan with a part payment of AED 20,000 at the same point instead. The fee is left out, because the car loan rows do not say which cap applies to a part payment.

The example works in whole months, at the annual rate divided by 12. Lenders work out interest on average daily balances, as the Central Bank’s guidance on Article 6 of Regulation 29/2011 requires, so their figures will differ a little. If your loan was quoted at a flat rate, convert it first: see flat vs reducing rates. Settling a personal loan follows different caps, covered in early settlement of a personal loan.

How to settle your car loan, step by step

Get a written settlement figure, pay it, then collect your cheques and a no-liability letter and check that the mortgage has left the car’s record.

1. Check your Key Facts Statement. Lenders must disclose whether early settlement is possible and how the fees are calculated, and the Key Facts Statement must include a worked example of the early settlement fee (Consumer Protection Standards, Article 2). Our guide to the Key Facts Statement shows what else it contains.
2. Ask for the settlement figure in writing. Ask for the balance, the interest to the settlement date, the fee, the VAT and the date the figure is valid to.
3. Pay it, and keep the lender’s confirmation.
4. Ask the lender to release its mortgage. The NOC to the traffic department is free; the next section explains the release in each emirate.
5. Collect your post-dated cheques. If the lender holds any, the rest must come back to you within 7 complete business days of the payoff.
6. Ask for a letter of no liability. It confirms in writing that nothing is owed, so it does the job of a clearance letter. The lender must issue it within 7 complete business days of your request.
7. Check the records. Check that the vehicle record no longer shows the mortgage. Later, check that your Etihad Credit Bureau (AECB) report shows the loan as closed: the report covers active and closed facilities (AECB FAQs). See how to check your AECB score.

Returning post-dated cheques after a payoff

7 business days

When a loan or financing is paid off early, the institution must return the remaining post-dated cheques to the consumer within 7 complete business days of the payoff.

Letter of no liability

7 business days

A consumer can ask the lender at any time for written confirmation of whether any liabilities are owed; the lender must issue a letter of no liability, or, if something is still owed, a letter of liability with the details and amounts, within 7 complete business days of the request.

Removing the bank’s mortgage from your car

The car stays mortgaged until the lender releases its mortgage, and the lender may not charge you for the NOC to the traffic department. Our used car guide explains how the lender’s lien is registered.

Lender's charge for the NOC to the traffic department

AED 0

Lenders may not charge for a no-objection certificate (NOC) to the traffic department on a car loan.

Dubai

RTA says a mortgage is redeemed at the bank. Mortgage details appear on all vehicle documents, including the Vehicle Licence, and RTA reissues the ownership document when a mortgage is added or redeemed. Neither page says whether a fee applies to the release or how long it takes.

Abu Dhabi

Abu Dhabi Mobility lists the release of vehicle mortgages among its vehicle licensing services, available digitally through the TAMM portal with UAE Pass and an active traffic file. The page gives no steps, documents or fees.

Other emirates

In October 2015 the Ministry of Interior launched vehicle mortgage release as an e-service linked to banks and finance companies (news item on the Abu Dhabi Police website). The item does not say which emirates use it today, so ask your lender and the licensing authority where the car is registered how the release is recorded there.

Selling the car or moving the loan

In Dubai a mortgaged car cannot change owner until the mortgage is released, and moving the loan to another lender costs an early payment fee of at most 1% of the balance or AED 10,000, whichever is less.

RTA lists an electronic mortgage release among the requirements for an ownership transfer and tells sellers to release the mortgage online first (RTA). Selling or transferring a car that still has a loan is a separate topic, with its own steps for seller and buyer.

Under Article 20(b) of Regulation 29/2011, any borrower may transfer a loan or financing to another bank or finance company in the UAE. Your lender must allow the transfer without undue delay and cannot make you explain why you are leaving or show it the competing offer, unless it has evidence suggesting a risk of financial crime (Consumer Protection Standards, Article 5).

Maximum fee for moving a loan to another lender

1% or AED 10,000

A borrower may move a loan or financing to another bank or finance company in the UAE on paying an early-payment fee of no more than 1% of the outstanding balance or AED 10,000, whichever is less.

If the new lender asks your current one for a liability letter, the car loan rows cap that letter at AED 60 before VAT.

Islamic car finance

Islamic banks and finance companies may charge an early settlement fee only for the actual costs that the early settlement causes them, in line with the Higher Shari’ah Authority’s resolution on early settlement (Consumer Protection Standards, Article 11). The Central Bank’s guidance on Article 7 of Regulation 29/2011 also requires an adequate rebate on prepayment, so that the final charge stays within the fee table. Islamic car finance is a separate topic; for how the structures differ, see Islamic vs conventional finance.