Choosing the Right Personal Loan: Factors to Consider


Choosing the Right Personal Loan: Factors to Consider

The demand for personal loans has increased significantly as UAE banks introduce new and more personalized loan products. Take the First Abu Dhabi bank as an example, it provides many loans’ choices to the nationals, newcomers as well as to landlords who want to borrow against the rental income. With so much diversity, many UAE residents do feel overwhelmed by the choices. To make your decision easy, let’s look at some of the main factors you should consider before applying for your loan.

What is the Eligibility Criteria?

Most banks state the minimum requirements on their websites, making it easy to verify if you qualify for the personal loan. In most cases you should have these requirements such as:

  • Age: Must be at least 21+ years old. Additionally, some banks also take into consideration your age if you are near retirement to ensure the loan payments don’t exceed your working days.
  • Salary: Most banks require a minimum of AED 5,000 in salary. Some banks do require you to transfer your salary, but there are non-salary transfer personal loans as well.
  • Minimum Working Experience: You can’t get a loan when you are in the probation phase of your employment. For most a minimum 6 to 18 months employment period is necessary. 

How Much Can You Borrow?

While you could apply to get a loan for five million, the chances of your application getting approved depends on your salary. As per the UAE Central bank directives, your personal loan should not exceed 20 times your salary. This means, if you are earning AED 5,000, it is highly unlikely you could borrow a million dirhams.

Yet there is hope for those who don’t fall within the high-income bracket. With Dubai Islamic Bank, you only need to earn AED 3,000 if you are an expat to be eligible for an AED 50,000 loan approx. You could even try the DIB Rahah that helps to combine all your debt into a single personal loan payment.

What is the Profit Rate?

The profit rate is a term used for Islamic personal loans as it follows the tenets of the Islamic law. You should shop around before settling on a personal loan as the lower the profit rate on your loan, the better. On average you may see rates as low as 2.38% to as high as 21%. This, however, depends on the borrowed amount and other criteria.

Understanding how the repayment affects the profit rate is also important. You need to calculate by how much the profit rate decreases as you make the repayments. The saved amount helps pay off your loan faster as you have more money to put towards the principal borrowed amount.

How Long is the Repayment Period?

Most banks offer from 12 to 60 months as the repayment period. This again is dependent on the loan amount, your age, and your type of personal loan. 

Final Thoughts:

Before signing on the dotted line, do a careful examination of the processing fees and if there are any hidden costs. Also make a note of the fees you incur for late payments and early settlement. All this adds up to your total loan cost.