Personal Loan in the UAE
Various banks in the UAE offer personal loans to their customers. Personal loan is an unsecured loan that can be taken to meet your current financial requirements. There is no security against it. Borrowers prefer to take a personal loan as it is quick and easy and there is no limitations as to how the loan amount can be used. Banks in the UAE offer personal loan on a flat interest rate or a reducing interest rate basis.
Why would your personal loan application get rejected?
When you are in a challenging financial circumstances and you have no option but to take a loan, you opt for personal loan as there is no binding on how the loan amount can be used. So, you submit your documents to the bank and are waiting for approval, do you know what happens behind the scene of the loan approval process?
Banks go through credit and background check to ensure that it is safe to lend money to you. They take the following factors into consideration:
Banks usually need assurance that you have a stable and adequate income so that you can repay your debts in time. Banks prefer to lend to individuals who are getting monthly salary as there is less income fluctuation. The loan amount approved is proportional to the individual’s salary. If your salary is fluctuating or is low, your personal loan application could be rejected.
- Salary transfer:
Banks often require you to transfer your salaries to the account with them as then they can just deduct the monthly instalments automatically. The banks can also freeze your account in the event you lose your job to cover the remaining loan.
- Company is listed with the bank:
If the company you work with is listed with the bank, they are more relaxed to offer you a personal loan. Listed companies are those companies that have submitted their financials to the bank. If the listed company has a steady profit, then it is guaranteed that you will receive your salary on time and can repay the loan without a glitch.
- Employment tenure with the current company:
Most banks don’t lend money if they fear that your job is not guaranteed. Many companies have 6 months probationary period and you could lose your job without any receiving notice during that period. Banks prefer to lend to individuals who have be employed for a minimum of 6 months with a company. You will be asked to submit the salary certificate and the bank do a reference check with your employer as well.
- Debt burden ratio:
Banks try and stay away from lending money to those who already have too much debt. They check your debt burden ratio and if you are paying more than 50% of your income towards loans, you may not get another loan. There is a higher chance of your personal loan application getting rejected. If your debt burden ratio is less than 50% then the banks may lend you at a higher cost as they are taking a bigger risk. Debt burden ratio is all the monthly repayments of the loan added with 5% of your total credit limit available on your credit cards.
- Credit history and credit score:
Your past credit behaviour is critical when it comes to approving you a personal loan. Banks can check your credit history and score which includes your total loan information and you past repayment history and the missed payments, etc. if any. Based on your credit report they take a call on if the personal loan application has to be approved or not. You can check your credit report before you apply for a personal loan. The Al Etihad Credit Bureau collects all credit information and a credit report is available at AED100.
- Incorrect personal details:
Most often you might end up including a wrong detail in your application form and this could be the main reason for your personal loan application rejection. You have to double check your application form to see if you have missed to fill out any important detail or have filled it out incorrectly.
You have to be above the ages of 21 to qualify to get a personal loan. You must also be below the age of 65 when you are reaching loan maturity. If you are younger or older, your loan application will be rejected.
Steps to avoid personal loan rejection by banks in the UAE
If you have applied for a personal loan and it got rejected, you can do the following to maximise the chances of approval:
- Check your credit report:
You must ensure that there is nothing in your credit report that could lead to any possible rejection. If your credit score is low, you must fix it and then go on to apply for a new loan.
- Check if you are meeting the criteria:
Before you send your applications, you might want to go talk to one of the bank executive and find out if you are eligible for the loan and are meeting all the criteria. The criteria depends on how much amount you want to borrow. You must know if you are meeting the minimum salary requirement. You can use the personal loan calculators to check how much will be going towards the monthly repayments.
- Declare your intentions:
When you are applying for a personal loan, declare the intentions for taking the loan. The bank might be able to give you a better deal and there might be specific loans for some purposes. Therefore, be truthful when you are applying for any type of loan.
- Provide all details:
If you are applying online, make sure that you are giving as much detail as you can so that the bank can contact you.
- Check with your employer’s bank:
When you apply for a loan with which your employer has accounts with, there is an increased chance of you getting an approval on your loan. As the relationship with the bank is already in place, the banks get an extra level of security.
- Clear existing debts if you can:
If there is a slightest chance that you can clear out an existing debt, then do so before you are applying for a personal loan. This increases your chances of getting a loan and it reduces your debt burden ratio. The banks prefer to lend money to people who show a history of clearing out their loans and consolidating their debt.
Alternate options available instead of taking a personal loan
If you are still not able to get a personal loan, it is not the end of the world, there are other options that you can explore. You can opt for the following in the event your personal loan application is getting rejected:
- Get a credit card:
If your credit requirement is low, you can opt for a credit card instead. Though the interest charged on a credit card is higher, you can work it out by turning it into 0% instalment loans or try and clear the balance by the end of the billing cycle. You need to be careful while taking a credit card. Opt for a lower credit limit so that you don’t get into a huge debt. You must remember to clear out your balances by the end of the month to avoid getting charged a hefty interest rate.
- Approach independent finance houses:
There are independent finance houses who will be more than willing to offer you loan. Though the interest rate will be higher, you will still get a loan. Be careful while borrowing and ensure that you pay the amount back on time.
- Approach your employer:
Most employers are willing to help their employees. The employers in the UAE lend you the money you require and usually cut it directly from your monthly salary.
- Borrow from friends and family:
If you are apprehensive about approaching the independent finance houses or getting a credit card or asking your employer, you can always approach your family and friends. They will be more than willing to help you out in your time of need. This could be the best option as you will not be paying any interest or very little interest.
Any suggestions or tips
When you are applying for a personal loan approach various banks and choose the best loan that the banks have to offer in terms of interest rate, the repayment tenure, and the loan amount. Make sure that you are meeting the criteria before you send in the application to avoid getting rejected. Don’t apply at too many banks as it gets red flagged and the banks will be wary to lend you any money. Apply for a loan only when you have explored the other options. Never take a higher loan just because you are eligible for it, borrow only what you require to avoid getting in a huge debt.