Your Guide to Personal Loan: What You Need to Know

Personal Loan in UAE

Personal Loan is a loan which is borrowed on personal lines of the individual borrower and the borrower receives a lump sum amount of money at the start of the loan. There is no restriction on the money received and the borrower is free to do whatever he wishes to do with the amount received. Personal loan is an unsecured loan meaning that there is no collateral or asset underlying as a security for the loan borrowed.

Reasons for Taking a Personal Loan:

1. Interest/Profit Rates: Personal loans in the UAE often offer lower Sharia-compliant profit rates compared to loans in other countries.
2. Ease of Repayment: Personal loans are tied to incoming salary, allowing for strict auto-debit facilities and timely repayment.
3. Debt Consolidation: Many expats in the UAE use personal loans to consolidate credit card or other debts, providing a more manageable repayment structure.
4. Early Repayment: UAE laws make early loan repayment easier, with capped fees to encourage early settlement.

Your Personal Loan Installment Calculator(EMI)?

When to Consider a Personal Loan:

• To pay off high-interest credit card debt.
• For emergency situations like marriage, childbirth, or relocation.
• To finance an asset purchase in the home country.
• When a better option is unavailable, such as interest-free loans from the employer.

How to get qualified for a personal loan?

In the UAE(United Arab Emirates), banks strictly lend personal loans to the individuals who are salaried working on a list of approved companies. The minimum salary requirement to be eligible for a personal loan in UAE is AED 5,000 in most of the banks. However, this rule changes from bank to bank. The debt to income ratio will be maximum 50%. These rules are laid down by UAE Central Bank to regulate the banks. These are just basic requirements. The bank might have its own credit policies while lending Personal Loans.

Interest rate on personal loan

Interest rates on personal loans are higher since they are unsecured. In the UAE, the interest rates on personal loans can range from 8% to 49%. Hence, be careful before applying for a personal loan. Study all the terms and conditions of the loan.

Credit Score and Debt Burden Ratio:

• The Al Etihad Credit Bureau provides credit reports, including credit scores, which banks use to assess loan applications.
• Banks consider the debt burden ratio, with a higher ratio potentially affecting loan approval.

Loan Amount and Fees:

• Personal loan amounts are typically limited to 20 times the applicant’s salary, with a maximum of Dh1 million.
• Fees such as arrangement fees, service fees, and insurance coverage may apply, and banks may collect security cheques or require salary transfer letters.

Choosing the Best Loan:

• Evaluate interest rates, repayment terms, and benefits offered by different banks, including Islamic banks.
• Consider salary-transfer loans for better rates and easier processing, but explore options from new banks for potential benefits.
• Understand insurance coverage and associated fees for loan protection.

During and After the Loan Term:

• Some banks offer deferral options for monthly installments or provide credit shields for unemployment.
• Maintain emergency funds to cover loan installments in case of unexpected events like job loss.
• Upon loan repayment, ensure all documentation is properly handled, including canceling security cheques and obtaining clearance letters from the bank.

How to apply for a personal loan?

Banks have their dedicated teams to cater to the lucrative personal loan business. Bank websites also could help. However, do not always listen to what the sales representative says. Understanding the requirements and procedures involved in applying for such a loan is essential for a smooth process.

Eligibility Criteria for Personal Loans in the UAE:

To apply for a personal loan in the UAE, you need to fulfill certain conditions:

1. Citizenship or Residency: You must be either a UAE national or a resident of the country.
2. Age Requirement: Applicants must be between 21 and 65 years old.
3. Minimum Salary: Most banks require a minimum monthly salary ranging from AED 3,000 to AED 10,000.
4. Bank Account: You should have an active current account with an authorized bank in the UAE.

It’s worth noting that many banks prefer to offer loans to individuals employed by companies listed with them. If your employer is not listed, obtaining a loan may be more challenging. Companies typically get listed with banks once they meet certain criteria. If you’re unsure whether your employer is listed with a bank, you can inquire with your HR department or directly contact the bank for confirmation.

Can You Get a Loan if Your Company Isn’t Listed?

While banks generally prefer dealing with listed companies, they may still offer personal loans to individuals based on various factors. It’s advisable to check with the relevant financial institution to clarify their policies regarding loans for employees of unlisted companies.

Application Process for Personal Loans in the UAE:

If you meet the eligibility criteria, you can proceed with the application process:

1. Assess Loan Options: Consider the monthly installment plans offered by different banks and determine the amount you wish to borrow.
2. Visit or Apply Online: Visit the bank’s branch or apply online through their website.
3. Prepare Documents: Along with the loan application form, submit the following documents:
   • Emirates ID
   • Salary transfer letter
   • Passport copy with UAE resident visa (for expats)
   • Bank account statements for the past three to six months
   • Trade license (for self-employed individuals)
4. Verification and Approval: The bank will verify your documents and assess your eligibility. Upon approval, the loan amount will be disbursed to your bank account.

Key Considerations When Applying for a Personal Loan:

• Avoid applying for a loan that significantly exceeds your current salary or total income.
• Ensure that the repayment duration does not extend beyond 48 months. If you approach retirement age during the loan tenure, the bank may adjust the repayment schedule accordingly.

Are personal loans good?

If you look at personal loans from the perspective of interest rates, they look to be bad. But personal loans can be really helpful in times of urgent requirement of funds. Such a situation might arise from medical bills, education and so on. It is a matter of judgment after all. Beware of the flat interest rates that mislead the consumers. Probe with the bank whether the inteterst charged is on reducing balance or flat interest rate.

Personal loans when used properly can be a boon and in other cases it may turn out to be a bane. So be careful.