So, what do you need to know when you are comparing loans? The fees, the terms, the eligibility criteria amongst many others.
The key thing to consider with any loan is that the longer you take to repay it, the more money you will give to the bank in the form of interest repayments. Another element is hidden fees. There is often an arrangement fee – typically 1% – charged by the bank for facilitating the loan. There may also be charges levied for any missed or late repayments, and for those that choose to pay off a loan early there is often an early settlement fee of 1%. With this mind here are some factors to consider when you want to take out a loan of:
AED50,000 loan requirement
At this amount you have many choices. Firstly, compare all the loan options on the market. Things to consider for lower loan amounts include:
- Loans that don’t charge early settlement fees and loans that allow shorter tenure periods. Remember some banks may be unwilling to lend a smaller amount, as it will reduce the profit they can make on interest payments – unless of course you plan to spread the payments over the maximum loan tenure of 48 months. This, however, would be unwise as it increases the cost of that loan.
- A simpler solution – particularly for those certain they can pay off the loan quickly – is to sign up for a credit card with a high borrowing limit and use that to plug the gap. Yes, the interest rate is far higher, but if you can pay off the amount in a matter of months, it might be the simplest way to borrow as, unlike a loan, credit cards offer a short-term flexible borrowing option. Remember, you can also switch the credit card debt onto a card offering a 0% interest for a limited period giving you more flexibility for paying off the debt.
AED100,000 – AED 200,000 loan amount
This is a much bigger amount to borrow and few credit cards – unless you have a very high income and therefore a high credit limit – would be suitable for this amount. Of course, you could spread the amount over several credit cards but this leaves you very vulnerable if anything goes wrong and prevents you from repaying the money quickly. To consider:
- A personal loan offering a low rate, at the shortest possible tenure for your income would be ideal here. Loans are longer-term, fixed borrowing solutions and are ideal for those who like to know the exact outgoing every month from their account
- Consider the arrangement fee when it comes to a bigger loan amount – this fee is typically 1% of the total amount which on a AED 100,000 can come up to AED 1,000 and AED 2,000 on a loan of AED 200,000
AED250,000 or more loan requirement
Once you start looking at loans of this amount, you need to be in an even higher salary bracket and, once again, have a spotless credit history. The more you need to borrow, the more carefully a bank will scrutinise you. This is what you need to consider:
- When a bank assesses the risk associated with you, they will look at your salary and ask whether the loan repayments, along with any other debts you may have, make more than 50% of your monthly income.
- They will also look at your credit history in the UAE and, if possible, probe your credit dealings elsewhere. They may also take into account your employer’s reputation and how long you have lived in the UAE.
- At this level, if you decide to pay off your loan early, be it to refinance or you are in a better financial position, you need to consider the early settlement fees. It is a fee applied by most banks to close a loan earlier than its tenor and is typically in the range of 1-3%. Some banks have offers of 0% but you need to check clearly that this offer applies when you pay it off with your own funds vs refinancing.