By personal loan, one is referring to a lump sum quantum of money, which is borrowed for some time from someone, a lending agency, or company. It is carried with the promise of repaying all the money within a specific time period at a particular rate of interest.
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A Personal Loan is availed of for covering any financial liabilities of the individual. In case of such loans, banks provide you with requested amount simply on basis of your income and personal credit score. A personal loan will be typically taken to fund a hard to miss deal for a vacation, financial emergency of a friend, medical emergency, shopping festival, or higher education.
Personal loans are useful when you need to spend more money than you have available in your savings or credit card. After you have negotiated the loan with your lender, it is suitable to add it to your budget.
One great fact with personal loans is that you gain control over monthly payments. An example is to consolidate your debts in case you are overwhelmed with payments. This makes it easy to meet monthly obligations.
A personal loan also provides you with the freedom to indulge in purchases, which are not within your usual capacity. It is useful, particularly, for businesses. In case, you wish to use the loan to buy something unproductive; it is good to postpone the loan.
It is possible to take out a personal loan in UAE without a salary transfer. This implies that you can take a personal loan from a bank without needing to transfer your salary flow to the same bank. Such loans are quite common in the UAE.
You can easily locate loans without salary transfer by online research. There are many UAE websites, like Compare4Benefit, which can do the job for you within minutes. They also provide online calculators to determine your monthly payments.
Features of Personal Loans:
Have a fixed amount
The maximum amount of personal loans ranges from AED 1,000,000 to AED 3,000,000. It is based on your credit rating, your other debts, your income, and the lender. The higher your income and better your credit score, you can borrow more money.
Some banks have a cap on the quantum of personal loan. As opposed to credit cards, personal loans are a one-time loan. You cannot borrow like using a revolving credit card. Once you pay off the loan, there is the closing of your account. You will have to re-apply in case you need to borrow again.
Mostly fixed interest rate:
In case of personal loans, the interest rate is locked and does not change for the life of the loan. Just like the loan, interest rates on personal loans are dependent on credit rating. Usually, you will be charged a lower interest rate if your credit score is good. But there are also personal loans with variable interest rates. The disadvantages with these are that monthly payments fluctuate and cannot be factored in easily in your budget.
Fixed period of repayment
Your personal loan must be paid up in a fixed period. Loan payments are stipulated in months: 60, 48, 36, 24, and 12, etc. Longer repayments may reduce your monthly payment but implies that you pay more interest in the long run. Also, in case, you pay back loans earlier than agreed on, you may have to cough up extra money in terms of early repayment penalty.
Impact credit score
The details of all loans will be communicated by banks to credit bureaus, and thus, impact credit scores. All aspects like the amount of loan and the timeliness of your repayment will be recorded. For a good score, it is better to be punctual with your repayments.
Beware of imposters
Steer clear of scams, especially if a lender approves your loan easily in spite of your poor credit score. Avoid those who charge for loan information. Always apply for a loan with a reputed bank.
Tips for Taking Personal Loans in UAE
Do research on interest rate:
The interest rates charged by different banks differ, so do complete market research. Other banks may offer loans at a higher rate compared to Islamic banks, but their terms of repayment may be more flexible. Do research on different banks to arrive at a decision. You can even consult financial advisors.
Keep track of credit history
In case you have borrowed in the past; your banks will have a record of your credit history. With your credit history, you will know how you will qualify for a new personal loan. In case, you have defaulted on repayments; it will reduce your credit score and banks may charge higher interest rates.
Find other options
A bank may not be the only solution. If you have a solid state of finances, you will be eligible for credit cards like HSBC Platinum Card or Citibank Card, which will charge as low as 0% interest for the first year. You can even borrow from a trade guild. But banks are the most popular source of personal loans.
Determine exact need
There are two kinds of loans – secured and unsecured and the difference is that a secured loan is secured against a collateral asset while unsecured is not.
Determine your exact need based on whether you are okay with placing a mortgage asset as collateral or pay high-interest rates associated with unsecured loans.
Avoid borrowing more than required
Many times, banks will offer big loan amounts based on factors like your good credit score. Avoid going in for such attractions because it will only increase your debt burden. So, steer clear of any unusually attractive offers.
Determine complete charges
Securing a loan involves more than paperwork and getting money in hand. Several banks charge registration fees, processing fees, at a percentage of your total loan amount. Ascertain which bank provides the best deal after factoring in all charges.
Check capacity for EMI
You can pay back your loan amount in a fixed tenure. Banks offer 1 to 5 years for returning the money with a differing rate of interest. Get realistic about how much you can pay in EMIs (Equated Monthly Instalments). Don’t plan EMIs based on future projections, which may or may not manifest.
Compare prices
When you take a loan, keep aside some time to shop around and compare loan packages. Don’t be taken in by published or advertised rates. Interest charges vary based on a lot of factors such as the size of your salary. The 4% rate advertised by the bank may not apply to you if you earn below a threshold.
Review terms and conditions
If you get a good deal, consider the total cost of the offer. The terms and conditions of a loan are just as vital as the rate of interest. Some of these include hidden penalties and fees. It is crucial to note the terms for early repayment of loans.
In case, you don’t read the fine print; the loan may cost you much more than you imagined. Getting all terms and conditions in writing is good.
Consider added products
Several banks register you automatically for payment or credit insurance when you become a borrower. You must review the terms of insurance to help decide whether to use such cover or go in for an extra personal cover.
Keep credit score in check
The eligibility for a personal loan is based on your credit history. Ensure you don’t go in for a loan unless absolutely essential. The reason is every time you opt for a loan; it is recorded in your credit history, damaging future chances of loan approval.
Increase credit score
For enhancing credit score, ensure you steer clear of negative points like late payment of bills. Al- Etihad Credit Bureau (AECB) has launched a credit report system. The best thing is to pay your bills and repayments on time. You can always request your credit report to check for any errors which might hinder your loan application.
Debt- Income Ratio
When you buy a loan in the UAE, make sure you can pay back EMI. One of the major factors for getting a personal loan is how much debt you already have. If you are drowning in debt, banks will be wary of providing loans.
As per the rules of the UAE Central Bank, the DBR (Debt Burden Ratio) cannot cross 50%.
This implies that your entire monthly payments with existing debt can’t exceed 50% of your income. For instance, if you earn a monthly income of AED 10,000, the monthly repayments of debt for you cannot cross AED 5000.
Be a listed company
Even if you don’t have income transfer to the same bank at which you apply for loans, it is good to be employed by a company listed for approval by the bank. Banks are more inclined to provide you with a loan, if your company is listed.
Otherwise, you may be denied a loan or charged a higher rate of interest. If your current company is not listed, get into action by offering the bank to get in touch with the HR department of your company.
Consider co-applicant
If all your attempts for a personal loan fail, you can use a co-applicant. This would be typically a close relative or spouse who will agree to pay back the loan in case you default. This applicant will be evaluated just the way you are (good credit score/ less debt, etc.).
Avoid borrowing more for less interest
Interest rates may depend on the amount of money you borrow. The higher the debt is, lesser will be the rate of interest. Keeping this in mind, several individuals choose to raise their loan amount to make use of a good rate. But this is not a wise decision, and it will be bad for your wallet. You must borrow only what you need.
Negotiate
For getting a low rate, try to put pressure on your bank for the same. Thus, you can negotiate with the lender- they will cut interest rate, and you will pay less.
Honour existing payments
It may not be enough to have a low debt burden ratio. In case, you are paying late consistently; this will be recorded in your credit report. Prospective lenders can extract this information from the AECB. The good part is that if you have been timely with your repayments, you have a good chance for getting a fresh loan.
Do thorough comparison
Do not just finalize your loan as soon as you get approval from a bank. Use a website for financial comparison for personal loans for details like fees, features, and rates. You may be surprised by the different offers. After comparing loans, you will know which the best fit is for you.
Top UAE Banks for Personal Loans
Abu Dhabi Islamic Bank (ADIB)
It is one of the leading UAE banks. It offers personal finance to the tune of AED 3 million for nationals of UAE and AED 1 million for expats.
Features and benefits
• Free cash back VISA card.
• Option to postpone instalments every year.
• Grace period of 90 days for the first installment of payment.
• No processing fee for new customers.
• Interest rates from 6.25% to 6.99% ( annual).
• Minimum salary of AED 8000
Abu Dhabi Commercial Bank (ADCB)
Offer packages for both expats and nationals.
Benefits and features:
• Long period of repayment.
• Free life insurance for credit.
• Free credit card.
• Interest rate from 4.99% to 14% ( per annum).
• Minimum income of AED 6000.
Dubai Islamic Bank (DIB)
It provides personal finance compliant with Shariah law.
Benefits:
• Maximum loan amount of AED 2,000,000 for expats and AED 4,000,000 for nationals.
• Tenure of 48 months.
• Interest rates from 11% to 20% (per annum).
• Minimum salary of AED 3000.
Emirates NDB Bank
It provides an array of personal finance products.
Benefits:
• Repayment period of 1 to 4 years
• Easy loans for newcomers to UAE.
HSBC Bank
It provides quick processing of personal loans.
Benefits:
• Approvals in 10 minutes or less.
• No need for credit life insurance.
• Interest rates from 5.99%.
• Minimum income of AED 7500.
Conclusion
These are all some facts about taking a personal loan in the UAE. You must do research online or offline and some serious number crunching to get the best deal.
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