Personal Loan

Banks in the UAE offers personal loans under two types of interest rates known as Flat Rates and Reducing Rates.

Flat Rate

A flat rate of interest on a PersonalLoan refers loan when the interest and sum payable is considered at the beginning of the repayment schedule and doesn’t change until the loan has been completely paid off. For instance, X loan of AED 12,000 was taken for a period of 12 months, means payments of AED 1,000 to be given on monthly basis (without interest). In addition to it, add a component of interest at the flat rate of interest at 5%, which equals to AED 1,050 per month (with interest), for 12 months, which adds up to a total amount along with interest of AED600 for 12 months.

Reducing Rates

Reducing rate of interest on a loan is an interest component that, after each installment, the principal amount reduces by the amount paid as per schedule. The interest percentage (which remains the same in number) is charged on the reduced amount, every month. Thus resulting in different installment amounts each month.

Personal loans offered by banks attracts following features which are listed below

• High loan amounts (i.e. AED 500,000 to 2 million for UAE nationals) based onlength of employment of the customer and monthly salary.
• Several banks offer attractive reducing interest rates starting from 4.99% to 2.63% flat p.a. depending on customer income and loan amount.
• It offers Different packages Emiratis and Expatriates or salaried and non-salaried employees.
• Certain banks also offer loan tenures up to 48 months or more.
• Most banks offer optional insurance coverage.
• The minimum required salary has to be is AED 5000 depending on the customer’s profile as well as income.
• Certain banks offer free lifetime credit card and Life coverage is also offered by several banks.
• Customers can opt for various top-ups depending on their salary hike or as per their requirements from time to time.

• Certain banks propose no payment option for the first two months.
• Certain banks offer the option of Islamic finance to their customers.
• Numerous banks offer value-added banking services apart from installment deferred option available.
• Popular banks offer maximum financing for such loans for up to 4 years.
• A free debit card is also offered by certain banks to expatriates.
• Most of the banks also offers, enhanced credit life coverage.
• Loan return option is offered by some banks for certain eligible customers.

Loan eligibility in the UAE differs from one bank to another bank, but the general eligibility criteria for most banks in the UAE are as follows-

• The age limit for the applicant must be a minimum of 21 years
• The tenure of service can range from one month to six months
• The applicant must be drawing a minutest salary ranging from AED 5,000, and in some cases it may rise up to AED 15,000.
• Salary transfer is generally a requirement
• At the time of maturity, the maximum age for UAE nationals is capped at 60 years, however, for expatriates the cap is 65 years.

The documentation required to avail personal loans in the UAE can vary from bank to bank. However, following particulars are the general documentation which are usually required:-

• Loan application form with complete particulars
• Passport copy, VISA copy, Emirates ID as identity proof
• Copy of valid Passport with valid UAE residence visa for emigrants (Original required for verification)
• Salary transfer letter/salary certificate (For salaried employees)
• Bank statements – 3 to 6 months
• Trade license (For self-employed customers)

The banking sector in UAE is, by and large, protected, although, the presence of foreign banks has gradually been on the rise in the recent past years. There are about 46 banks (including foreign banks) functioning in the UAE. Banks incorporated in Dubai and Abu Dhabi contributes around 90% of the total domestic assets.

In 1985, Islamic banking in the UAE was legalized. According to them, banks cannot charge fixed interest rates on loans as well as deposits. There is an opinion that the central bank of the UAE can only play a limited role in terms of setting interest rates and the monetary policy of the UAE currency is pegged to the US dollar.

Expatriate population

There is a view that most UAE banks, by and large, are cautious of becoming dependent on a personal loan market share as most banks do not have robust credit reports, owing to an emigrant workforce. More often it does not have long-term residency status. Emigrants in UAE can, therefore, open a bank account or benefit from any service only after they furnish a guarantee letter from their employers in addition to other guarantees as well.