📝 UAE Personal Loans explained

Kacper Duda
Mar 12
4 min read

Personal loans can be a useful tool to plug a temporary cashflow gap or deal with unexpected situations. Due to their high costs, we treat them as a last resort and they always have to be managed carefully.

With UAE banks' lending to individuals up by 15.4% last year, we believe there is a need for people to understand all types of finance and what to watch out for. You never know when you might need it. Read on to find out:

What personal loan interest rates can you get?
The factors impacting approvals and interest rates
Fees and charges to look out for
In the news: Gap in UAE salaries expected vs. offered grows to 30%

Interest and profit rates

You will be lured by very attractive headline rates starting at ca. 5%. Whilst achievable, these are reserved for "perfect" candidates with high salaries and very good credit scores (more on this below).

More reasonably, you can expect rates around 7-7.5% (on a reducing balance basis) given the UAE Central Bank base rate remains high. Be careful though, as offered rates may be significantly higher, so shop around before you commit.

What does your rate depend on?

The individual rate a bank will give you depends on your personal circumstances, such as:

Your salary - The higher your salary in relation to the loan you are applying for, the better the interest rate the bank will be willing to offer you.
Salary transfer account - Having your salary go into an account with the same bank will be seen as extra security, which usually means better rates.
Credit score - Your UAE credit score is an estimation of your creditworthiness. The higher the score, the better your chances of obtaining a loan at a good rate. We explained how you can check and improve your credit score in this article.
Listed vs. non-listed employer - If the company you work for is "listed" with the bank, you will likely avail a better rate (sometimes this is a pre-requisite for a loan). Listed simply means the bank has performed its due diligence on the company and recognises it as in good standing.

Costs to be prepared for

When looking at the total cost of the loan, it's important to consider additional costs:

Interest - The bank should provide you with a calculation that shows how much you will pay in interest over the lifetime of the loan. It's best to use this number to compare any offers you may have from multiple banks.
Arrangement or processing fee - The majority of banks charge 1% + VAT of the loan value when the loan is first issued.
Early repayment / closure fee - At the outset, you will agree a tenor for the loan - i.e. how long the loan repayment will last (usually between 1-4 years). If you choose to repay it early, most banks will charge 1% + VAT of the remaining loan value at the time.
Life insurance fees - Some banks will ask that you have a life insurance policy in place for which the bank is the beneficiary. Banks will offer options to arrange that as part of the process. Check if it's a requirement and the associated costs.

What to watch out for

Personal loans are costly - see if there are alternatives available to you, such as 0% balance transfer cards we wrote about last year.
If you decided to get a personal loan, have a plan on how you will pay it back.
Never miss a payment - Same as with credit cards, missing a payment will have a significant impact on your credit scores.
Careful with "deferred first payments" - Banks will often offer for you to start repaying the loan only after 3 months from obtaining the loan. However, interest is accrued from the start, which means you will end up paying more in total if you take them up on their offer.
If you are falling into debt, please read our debt management article.

So how do you get the best personal loan?

Approach the bank your salary goes into first - this will often be the best offer
Obtain two additional quotes from other banks
Compare the offers and the T&Cs they come with
Choose the most attractive offer and sign the paperwork
Keep the documents for your reference

IN THE NEWS - Gap in UAE salaries expected vs. offered grows to 30%

The UAE job market is experiencing a mixture of competing forces. On one hand, demand for specialised employees remains strong, causing firms to compete for top talent. The rising costs of living are driving salary demands up.

On the other hand, the attractiveness of the UAE provides an influx of candidates willing to accept lower salaries, therefore moderating the salary increases overall.

Read which skills are in demand and can command a higher salary in this KT article.

Disclaimer: Please bear in mind that this email does not constitute financial advice. Any choices you make you are solely responsible for. We always aim to provide highest quality, independent views but do your own research to ensure you’re comfortable with any changes you make to your personal finances.