Most people call it an Islamic car loan. It isn’t a loan at all: a Murabaha is a sale.
The bank buys the car and then sells it to you at an agreed cost plus profit. You repay the agreed sale price in installments. There is no interest, because nothing was lent.
You don’t have to be Muslim to apply.
A sale in three steps
You choose the car and ask the bank to finance it. You typically give the bank a promise to purchase the car from it after the bank acquires it.
The bank acquires the car. It must own the car and take possession of it before selling it to you.
The bank sells the car to you. The sale price, including the disclosed profit, is agreed, and you repay it in monthly installments.
The order matters. If you have already bought the car yourself, the bank cannot turn that completed purchase into a Murabaha. So choose the car, but speak to the bank before you sign the purchase contract or pay the dealer.
What the sale changes
Because the financing is structured as a sale at an agreed price, some things work differently from conventional lending.
The sale price is fixed. Once the Murabaha sale is concluded, the agreed price stays fixed for the whole term.
Late payment does not create additional profit for the bank. Islamic financing can include a commitment to donate to charity if a payment is late. The amount must be disclosed in the financing documents, and the bank does not keep it.
Early settlement has its own rules. You owe the full sale price from the start. Banks commonly waive the profit for the remaining period and keep a charge of up to 1% of the outstanding amount, which is the Central Bank’s cap for car finance. One bank’s terms describe the waiver as being at its discretion, so ask for the exact settlement calculation before signing.
The cost must be disclosed. The bank must disclose the Sharia basis of the product, and the profit, fees and other costs, in its Key Facts Statement.
What stays the same
Choosing Islamic finance does not remove the UAE’s car-finance limits.
Under Central Bank rules, a car can be financed up to 80% of its value, so budget for at least 20% from your own funds. The maximum repayment period is 60 months, and your total monthly repayments must stay within the 50% debt-burden limit. Banks can apply stricter criteria.
The car also remains security for the financing. If you stop making payments, the bank can take enforcement action against it, and missed payments can damage your credit record.
You also have a cooling-off period of five complete business days after signing. You can waive it in writing.
What it costs — and how to compare
Islamic banks quote profit as a flat rate alongside a reducing (effective) equivalent. The same trap applies as with conventional car finance: don’t compare a flat rate from one product with a reducing rate from another.
Take one Islamic bank’s published example:
Car price | AED 100,000 |
|---|---|
Down payment | AED 20,000 |
Amount financed | AED 80,000 |
Total profit | AED 8,536 |
Total sale price | AED 88,536 |
Monthly payment over 60 months | about AED 1,476 |
The AED 8,536 profit works out to about 2.13% a year on a flat basis. The bank states the effective rate as 4.06%.
Same financing. Two very different-looking percentages.
That’s why NinjaCompares recommends looking at the reducing (effective) rate, the total amount payable and the fees together.
Before you sign, also check:
Processing fee
Insurance or takaful requirements
Late-payment terms
Any final or balloon payment
The Central Bank requires financing providers to disclose fees and early-settlement terms, so the Key Facts Statement is the document to read.
Who decides whether it is Sharia-compliant?
Not the marketing team.
Islamic financial institutions in the UAE have an Internal Sharia Supervision Committee responsible for overseeing the institution’s Sharia compliance.
Above them sits the Higher Sharia Authority at the Central Bank, which sets standards and oversees the work of the internal committees. The UAE has also adopted internationally recognized AAOIFI Sharia standards for Islamic financial institutions.
Ninja’s Takeaways
A Murabaha is a sale: the bank acquires the car and sells it to you at a disclosed price including profit.
Don’t buy the car first. Speak to the bank before completing the purchase.
Compare the effective (reducing) rate and the total amount payable, not just the flat profit rate.
Ask for the bank’s early-settlement calculation before signing.
Rates, fees and product structures vary by bank and can change over time. Always check the bank’s current Key Facts Statement and offer before applying.
