Moving to and living in a different country is an exciting opportunity; however, it comes with plenty of logistical challenges. One of the most significant considerations that expats have to make is where to do their banking and how they are going to afford the move and any additional expenses.
Taking out a personal loan to help settle down into your new life, or to enhance the experience you are currently having, is a fantastic option — as long as you choose the right bank and the right loan.
To help you make this important decision, read on for everything you need to know about getting a personal loan in the UAE for expats.
1. Understand the different types of personal loans
There are a wide range of reasons why an individual may choose to take out a personal loan. Some of the most common reasons for taking a personal loan are debt consolidation, home remodeling, emergency expenses, consumer durable purchases (furniture and electronics), educational expenses, jewelry, wedding expenses, vacation costs, and other large purchases.
As an expat in the UAE, there is a good chance that you are experiencing similar scenarios that make getting a personal loan a desirable option. The Commercial Bank of Dubai (CBD) offers several different salary transfer personal loan options for expats, including:
- New personal loan
- Top-up of existing personal loan
- Transfer of the personal loan from another bank (with or without topping up the loan amount)
These loans are available for salaried expats who receive their paychecks from employers that are on the approved list of CBD employers. To qualify, you will need to be a confirmed employee and with a minimum of six months of service with your employer, with a total monthly salary of more than AED 8,000. Even if you are a new expat, as long as you meet these criteria and CBD approves your employer, these personal loans are an option for you.
In all of these cases, the personal loans granted by CBD are to be used for personal use and are repaid through deductions from the individual’s salary. For this reason, your monthly salary must be transferred to your account with CBD.
You can apply for the personal loan instantly and conveniently through the CBD Mobile app and all you need is a valid Emirates ID. You will be instantly informed if you are eligible for the loan and you have the flexibility to change the loan amount or the duration of the loan and once confirmed, the amount will be credited into your account instantly in a matter of minutes.
Please note that you will need to make regular monthly payments until you have repaid the loan. As stipulated by the Central Bank, the maximum tenor is 48 months. For these loans, the minimum age requirement is 21 years, and the maximum age is 60 years at the last instalment due date for expats.
Also Read: 5 Smart Tips to Manage Your Home Loan EMIs
2. Consider how much you can afford to borrow.
While there are many great reasons to take out a personal loan, you still need to consider how much you can afford to borrow and pay back. After all, taking out any type of loan is a significant financial responsibility, so you want to make sure you are approaching it responsibly.
When calculating what you can afford, it is important to keep in mind that just because you can cover the monthly payment, it doesn’t necessarily translate to it being affordable for you. In many cases, individuals are living in homes or driving cars that they can’t truly afford – even if they are able to make the monthly payments.
Therefore, it is essential that you reframe your understanding of “afford” and put the amount in a broader context of how much of your monthly take-home pay the loan will eat up.
Rather than merely focusing on the interest rate, it would be best if you calculated how much you would pay over the life of the loan. This means both the amount you borrow in addition to the interest. Sometimes a lower monthly payment doesn’t necessarily make a loan the more affordable option. That’s because over time, you may end up paying significantly more; therefore, it is vital to do these necessary calculations when comparing potential loans.
3. Remember that interest rates vary by lender.
When looking at potential loan lenders, you want to pay close attention to the interest rates they have as this will significantly impact the cost of the loan, and these interest rates vary from lender to lender. Additionally, your interest rate is going to be determined by your individual credit profile which includes your monthly wages, loan amount, employer, and existing debt.
For example, one of the best personal loans for expats in the UAE is the CBD Personal Loan which offers interest rates starting from 7.25%pa that then reduce per year. The maximum amount for this particular loan is 20x an individual’s monthly salary or up to AED 750 thousand for UAE expat residents (whichever is lower).
Again, the better your credit score, the lower your interest rate will be. Plus, the longer your loan term, the more interest you are going to have to pay.
4. Know that a credit check is one of the most important aspects.
For expats who are looking to get a personal loan in the UAE, a credit check is going to be one of the most important aspects of your eligibility. In fact, one of the main reasons that loan applications in the UAE get denied is because of a low credit score.
Generally, a good credit score is considered to be one that is above 650. The higher your credit score, the higher your chances are of having your loan application approved.
By running a credit check, a bank in Dubai is able to ascertain an individual’s ability to repay the loan on time by looking at their debt to burden ratio (DBR). The DBR is the ratio of total monthly commitments of credit card, loans or any other monthly repayments to the total income of an individual. For example, the maximum permissible DBR for an expat personal loan is 50%, as set by the Central Bank.
Taking out a personal loan can help you to move to the next stage of your expat life, which is why it is crucial that you consider all the different aspects of loans and choose a bank and a loan option that makes sense for your personal situation.
Are you an expat in the UAE who is considering getting a personal loan? Why do you think this is the right move for you? What are you still unsure about? Let us know your thoughts and any additional questions you may have in the comments below!