A personal loan is nothing but a lump sum amount of money that you borrow for some time from someone, or a company or a lending institution; with the promise to repay all the money within a specific time period at a specific rate of interest. A personal loan is procured for setting off any financial liabilities that an individual needs to repay.
For anyone living in the UAE, they need to keep growing their assets and the first key toward building assets is to get rid of liabilities. A financial loan can be repaid conveniently as opposed to credit liabilities. In case you too are looking forward to procuring any personal loan(s) in the near/far future, always keep these guidelines in your mind before going forward to borrowing.
1. Research the market for Rate of Interest
Different lenders offer different amounts of loans for different rates of interest. Do thorough market research on different banks and their offers. Conventional banks usually offer loans at higher rates than traditional Islamic banks such as Emirates Islamic bank personal loan, but the former may offer more flexibility in repayment options. Make sure you compare interest rates from multiple banks before coming to a decision. This will help you get the burden off your shoulders as fast as possible.
Talk to financial advisors if need be. Avoid talking to a representative of a bank for advice, as their advice may tend to be biased.
2. Know Your Credit History
If you have borrowed in the past, then there will be a record of your credit history with the bank. This is a very effective way of knowing whether or not your loan will be sanctioned to the amount you expect. If you missed some deadlines in the past, your credit score would tend to be lower and banks may charge higher interest rates or sanction lower amounts.
If you’re a first-time borrower, your credit score will be determined by your income, age, background etc. Contact a bank to know your credit if you don’t have any history of borrowing in the past.
3. Find other options than banks
In many cases, a bank may not be your only option to procure a loan. If you have a solid financial state, you may be eligible for some credit cards in UAE that would let you get your job done and charge 0% interest for up to a year. Or if you’re a part of some trading guild, you might be able to borrow money from there for lower interest than what banks offer.
Having said that, banks are the most popular and also a secure way of procuring loans.
4. Find out the exact requirement
There are two types of loans most banks offer – Secured and Unsecured. Unsecured loans usually are lower in amounts and charge higher rates of interests as they do not involve any collateral to be placed against the loan. However, procuring an unsecured loan is usually easier than secured loans.
Secured loans, on the other hand, involve placing an asset against the loan amount, which might be confiscated by the bank, in case you are unable to repay the loan. Secured loans are valued against the value of the property/asset kept as collateral against the loan.
Find out your exact requirement as to the kind of liability that you need to get rid of, and decide whether you’ll be comfortable with a higher rate of interest or placing a mortgage asset as collateral. Placing your property as collateral might be undesirable to you as a borrower, especially if you wish to borrow money for a venture with uncertainties.
5. Avoid borrowing more than you need
At times, banks will offer you more money, based on credit score as loan amounts to get your job done and still have some money left with you. Avoid falling into these traps as this will not only raise the burden of loans but also you’ll end up paying more interest for a small requirement.
Also, avoid falling for top-up offers and other ‘attractive’ deals when on loan. These usually have you paying more money to the bank than what you initially intended.
Always remember, financial growth occurs with no liabilities and appreciating assets.
6. Assess the All-in-cost
Procuring a loan has more than just doing paperwork and getting the money in hand. Many banks charge processing fees, registration charges etc. usually in a percentage of the amount of money you wish to borrow. Find out which banks offer the best deal, work it out a little and find out how much you’ll need to pay the bank, including all the charges, fees, interest etc.
Check: Personal Loan with Zero Processing Fees
7. Check your EMI capabilities
Almost every bank offers a choice to the borrower to return the amount in a certain period of time. Banks offer from one to five years of tenures to return the money, with a different rate of interest for every offer. Be realistic and find out how much can you pay in EMIs(Equated Monthly Installment). Do not plan your EMIs based on future plans and assumptions; This might cause you to get stuck and unable to find any room for savings. Your loan tenure also determines your interest rate paid. Higher the repayment period, higher the interest amount.
The best thing is always to avoid borrowing loans in the first place if you can help it. However, in case you must play it smart to land the best deal possible. Good luck in finding the best loan.
Hemanta Bijoy Kaushik is a personal finance writer. Discovering his love for writing, he has written a number of blogs on personal finances and other genres on various digital media platforms. He has completed his MBA from IMT and currently working at HDFC bank as Personal Banker. When he's not writing, you can find him exploring different cuisines and binge-watching TV series. Hemanta hopes to write a novel soon. You can check out his work on www.instagram.com/hemantakaushik