A personal loan can help you achieve your financial goals. But a number of factors determine how to go about picking the right loan.
If you’re looking to consolidate high-interest debt or are faced with a large expense such as home improvement project, you might be thinking of taking out a personal loan in the UAE. Such financial option typically comes without the need for collateral, but eligibility varies according to your monthly income and your expense record.
Personal loans in the UAE are generally approved and disbursed within 3-7 working days.
But how do you go about choosing the best type of loan in the UAE? It’s worth asking a few questions before agreeing to a loan – diligence at the start saves trouble later.
Why are you taking out a personal loan?
Responsible money management means being aware of your financial situation at all times. The most important thing to ask yourself is why you’re taking out the loan – and what financial goal this cash injection will help you achieve. A vague desire to ease general constraints could leave you with a similar cash crunch further down the road. With clarity of purpose, you’ll be better equipped to decide how much money you need and what kind of loan to look for.
Is a personal loan right for you?
Once you have decided why you want a personal loan, you will need to figure out whether you want to transfer your salary to the bank or not. You may already have a salary-linked loan on your home or your car and may just want a little extra cash to tide you over a short-term dip. It is worth considering a personal loan in such cases because such loans typically do not require salary transfers.
How do UAE personal loans compare to credit cards?
Each financial product has its own benefits. A credit card is the earliest kind of virtual wallet, allowing you to pay for purchases as you go and may even offer rewards such as air miles or loyalty points. Depending on your credit limit, you may also be able to take a small loan on your card for immediate, short-term payments. A personal loan, on the other hand, allows you to pay for one-off, bigger-ticket items – such as a wedding in the family. It lets you settle a big bill at a single point in time, and pay back the amount over a longer period – usually up to 48 months. The financial product you choose should be determined by how you’re going to be using it. You may want to have both.
What fees does the loan carry?
A UAE personal loan may be released with a number of associated processing fees in addition to the interest. Such charges typically cover documentation, background checks, employment verification and whatever else the lender may require to guarantee their capital. These fees are often expressed as a percentage of the total amount, so it’s worth asking about them for a clear picture of all the charges that you may incur.
Does the loan come with any extra benefits?
The peace of mind obtained by paying off a big bill is a major benefit in itself, but in the UAE, you can always expect a little something extra. Personal loans are no different, with banks offering benefits such as shopping or gift vouchers for those who take out personal loans. Such incentives should only be considered if you normally make similar purchases; a gift voucher for something you do not need is not a benefit.
What’s the tenor of the loan?
The period over which the loan is to be repaid, the tenor, affects the total amount you need to pay back. As interest is charged on the reducing balance of the loan on a monthly basis, a shorter tenor will incur lower overall interest.
Do early settlement charges apply?
A small but important question to consider is how much it’s going to cost to repay your loan early. While you certainly won’t be charged the entire original interest amount, you may still be charged some penalty allowed as per UAE Central Bank guidelines. Being aware of such charges allows you to plan ahead.