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In recent times, many debtors are juggling between many loans like home loan, car loan, personal loans and credit cards. The high cost of living, especially in the UAE region and the upscale lifestyle causes people to spend beyond their means. When the debt goes beyond control, they approach banks or financial institutions for a debt consolidation loan.
What is Debt Consolidation Loan?
Imagine managing 3-4 loans and paying different installments for each one of them. These loans can be different rates of interest and also with different banks. Debt consolidation loan is a product offered by most banks and financial institutions which help consolidate all your loans into one single loan. The tenure, rate of interest and benefits can vary but the consumers believe it helps them begin their journey of a debt-free life.
Better tracking of finances – Since you have only one loan to repay, the number of installments come down to one too. This saves you a lot of time, effort, and money, involved in making multiple payments. This way you can track your loan components like interest rate being charged, etc easily.
Manage debts easily - Having multiple loans can be a little confusing. A single loan can be managed easily and the payments can be done on time without any delays.
Lesser interest to be paid– Usually, banks and financial institutions offering debt consolidation loans offer a lower rate of interest. So, by consolidating various loans, you can be assured of saving money which was being paid as interest.
Less percentage of Debt repayment amount on monthly expenses - Low interest rate will indeed reduce the monthly payment made on the debts which can save the loan holder a significant amount of money.
Credit rating– When you are juggling between multiple payments for different loans, chances are that you might miss or delay certain installments. This can adversely affect your credit rating and cause problems for availing further loans if required. Debt consolidation loans helps you by reducing the chances of missing or delaying payments thereby improving your credit score.
Stress-free- We live in a world full of stress. A loan is probably the biggest contributor to stress in our lives. By consolidating your debts you will feel a drop in your stress levels since all your installments would be merged into a single payment every month.
Additional benefits- Along with these banks might offer benefits like free postponement of installments, grace period for installment payments, discounts on processing fees, etc.
Every bank and financial institution have its own eligibility criteria which needs to be checked individually. However, some basic requirements are as follows:
Debt to Burden ratio [DBR] should not exceed 50 percent
Most banks have a requirement of salary transfer
Minimum salary starts at AED 7000
Must be a UAE resident
Should have loans in UAE to consolidate
Fees and charges are usually similar to normal personal loans but they must be checked before applying.
Which banks offer debt consolidation loans in UAE?
Abu Dhabi Islamic Bank [ADIB] Debt Consolidation Loan
Interest rate starts from 3.44%
Can get a grace period of 90 days for the 1st installment
Can postpone up to 2 installments every year
NO processing fee
High finance amount of up to 3000K AED
Job loss protection
ADIB Visa cashback credit card as complimentary
AED 3000 K
Free Credit Card; No Processing Fees
Mashreq Bank Debt Consolidation Loan
Lower monthly payments
Higher Loan amount – AED 1 Million for Expats and AED 3 Million for UAE Nationals
Maximum repayment tenure of up to 48 months
Salary transfer is mandatory
First Abu Dhabi Bank[FAB] Debt Consolidation Loan
Long repayment period is provided
Interest rates start from 5.12%
Only UAE nationals are eligible
Salary transfer to FAB account is mandatory
You will also have to prove that your outstanding credit was granted before May 2011 and your DBR is higher than 50 percent of your monthly salary.
Debt consolidation is a tool to help you get your loans under control. It can help you minimize the number of installments and in certain cases reduce the interest rates too. However, it does not make your debt disappear. You have to repay what you have borrowed and with 100 percent dedication, you can use this tool to reach a debt free existence.
Salary Transfer Letter as per the bank's format
Last 3 - 6 months bank Statements
Completed and signed branch application form
Valid Emirates ID
Residence Visa(only for expats)
How to know that Debt consolidation loan will work for you?
Debt consolidation is a long drawn process. Consumers with multiple credit cards and no savings to repay them should primarily consider debt consolidation as this can significantly reduce the interest rates. Debt consolidation requires an unwavering commitment to new repayment structure and persistence to follow it throughout the tenure of the loan. If this is you, then debt consolidation loan can help you become debt-free.
Remember: if you start taking more loans/credit cards, then debt consolidation will not work for you.