Balance transfer, sometimes also called as Buyout Loans basically means shifting the outstanding loan amount to another bank. from one bank. It could be a Credit Card bill, Personal loan, home loan etc. This usually happens when your loan interest is too high leaving you unable to make monthly payments properly. Usually, because of high-interest rates, you get to pay only monthly interest and the principal amount keeps on increasing; this is when a buyout loan or a balance transfer as we call it, comes into the picture.

Balance transfer in UAE mostly happens with credit cards because when compared to a credit card, personal loans are available for lower interest rates. Many banks approach you for transferring the balance from your existing credit cards to their bank’s credit cards. It can be considered a financial service similar to Debt consolidation.

How does it work?

If you already have a credit card with a high-interest rate, where handling monthly bills is becoming more and more hectic despite making timely payments, then you may transfer your existing outstanding credit balance to a new card with a minimal rate of interest where most of the banks charge zero interest for some limited time.

Interest rates and Processing fees:

It’s extremely important to check the credit limit of your new card. Your new card may have the same or more credit limit than the previous one. But make sure it doesn’t decrease. If it is lesser than your existing card, then there is no point of transferring because only the balance with the new limit will be transferred, which is inclusive of the processing fees.

Precautions to take?

Even though balance transfer seems easy with no interest payment for a few days, you need to bear the processing fees during the transfer, which totally depends on the banks. Commercial Bank of Dubai charges 1% processing fees which mean 1% of the amount you wish to transfer would be the fees. Mashreq, Standard Chartered Bank charges 3-4%,  Abu Dhabi Islamic Bank(ADIB) charges 2-3% as processing fees on Credit Card balance transfer. 

Also, keep a close eye on the following:

Most of the banks say no interest rates for a balance transfer but this would be valid only for certain time which usually lies between 6 months to 1 year. After that, there would be some interest payable, mostly variable in nature. It is equally true that at least for a limited time, you would be free from interest rates. But it is important to check the rate of interest that will be charged after the offer time. Some banks charge very high rate of interest compared to your old credit card which would again be a burden. Also, some banks don’t accept balance transfer if you have delayed/skipped monthly payments on your old card.

Points to be noted before transferring your balance:

  • Credit limit of a new credit card.
  • Processing fees
  • Zero Interest Rate validity
  • Rate of Interest
Balance transfer can come in handy when you are not able to manage with your existing Credit Card/Personal Loan expenses. But before transferring your balance, do proper research once as mentioned above. Choose your bank properly and know complete details to avoid any unnecessary complications.