• A Glossary of Loan Terminology used in the UAE

    All the answers about Loans

    Customers who wish to take out a loan, whether for the purchase of a new home, a new vehicle or even for small personal expenses. Here is a list of terms that you should understand before applying for a loan.

    General Terms

    Applicant: A loan applicant is one who applies to a financial institution seeking a loan be it a personal loan or mortgage loan. An applicant is expected to pay back the loan with interest within the determined term of the loan or tenure.

    Application Fee: For mortgages, an applicant will have to pay a non-refundable fee known as the application fee. At times, based on the financial institution the loan is availed from, promotional offers can waive this fee.

    Arrears: arrears are the sum of all outstanding money to be paid for the remainder of the loan tenure inclusive of interest charges.

    Charges: Otherwise known as fees, is a common charge levied against various services provided by a bank.

    Clearance Letter: A letter given to the borrower and issued by the lender that states that a mortgage or loan has been fully repaid. The letter is provided upon the full and final payment or the last instalment.

    Co-borrower Relationship: Along with the borrower, any other borrower who has jointly taken the loan out or a guarantor whose income and credit history is used to ratify the loan is known as the co-borrower. The co-borrower may be held accountable or liable for the total loan amount either jointly with the borrower or in an independent nature.

    Early Repayment Charge: The charge levied on the loan amount if the borrower repays the entire loan amount before the duration of the loan. This type of charge may or may not exist depending on the type of loan availed and the type of institution that disburses the loan.

    Eligibility: A set of requirements such as income or age that qualify a borrower to avail a loan. The requirements vary from loan to loan and from institution to institution.

    Equated Monthly Instalment (EMI): EMI is a monthly instalment that needs to be paid which reduces the loan amount and interest owed over time. These are made on a monthly basis and the amount is set such as to fully repay the loan within the determined tenure.

    Instalment: A predetermined number of payments to be made on a monthly basis (usually) in a particular frame of time that when completed will have settled the loan inclusive of all interest charges.

    Know Your Customer (KYC): A process that financial institutions adhere to in order to thoroughly identify their clients and find out information about prospective clients in order to carry out business with them.

    Memorandum of Understanding (MOU): MOU is a legal document that outlines and highlights the terms and conditions of a particular agreement.

    No Objection Certificate: A legal written document stating that the owner or any other interested party such as a lender has no objection to the property in question being sold.

    Processing Fee: A part of the charges, this fee is a non-refundable fee levied for processing the loan application.

    Valuation Report: It is a detailed report provided by a professional valuer on the current market value of a particular property.

    Personal Loans

    Personal loans are those that can be taken out by customers to meet their financial requirements. The funds can be used for a variety of reasons including marriage, education, home repairs and renovations, or even for shopping during special occasions.

    Annual Percentage Rate: It refers to the total charge applicable to a loan and includes interest rates and fees that allow customers to make comparisons between financial products.

    Application Fees: This is the fee charged by lenders in exchange for the service provided to arrange process the application of the loan.

    Automatic Transfer: It is a system that allows customers to transfer money automatically from one bank account to another in case they wish to make utility or other payments from a particular account.

    Basis Points: These are points that can also be expressed in the form of 0.01% interest. For instance, 60 basis points means that the interest rate is 0.6%.

    Comparison Rate: It includes the payments, interest rate and charges and fees that are reflected in one rate and indicating the total yearly cost of your loan.

    Credit Rating: It is a calculation of a loan applicant’s credit worthiness based on their repayment and borrowing history.

    Credit Report: It is a statement prepared by authorised agencies to reflect the credit history of a loan applicant. It is based on this report that lenders determine whether or not a customer is eligible for a loan.

    Current Rate: It is the rate minus special offers, discounts and fees, advertised by lenders.

    Debt-to-income Ratio: It is a ratio that displays the amount of debt a borrower is in (expressed in percentage) in comparison with their total income.

    Debt Consolidation: It is a facility that allows customers to take out a loan to repay other existing loans.

    Default: The inability of a customer to make repayments within the specified period.

    Down Payment: It is the initial payment made by the customer on a home loan, generally a small percentage of the total value of the loan.

    Equity: It is the outstanding claim to ownership held by the purchaser. For instance, when you buy a property by taking a loan worth $200,000 and repay $80,000, the owner’s equity on the property will be $120,000.

    Fixed Rate: Loans that come with fixed rates of interest charge the customer the same rate of interest for a certain time period no matter what, but the rates will start to vary after the particular period of time.

    Grace Period: The time period between the due date to make a payment to the date up to which customers are allowed to be late without having to pay a penalty.

    Guarantee: It is an undertaking that ensures a sum of money is paid upon the completion of a defined event or when a claim is presented.

    Interest: The money charged by the lender to offer a loan to a customer.

    Late Payment: The payment that has not been made within the predetermined date.

    Principal: The total sum of money owed by the customer exclusive of interest.

    Redraw: It is a facility that allows the customer to withdraw money they had paid earlier. In most cases, redraw is availed when customers are ahead on loan repayments.

    Refinance: The second loan taken out by a customer to pay off existing debts.

    Repayment Holiday: It is the period in which the customer has no obligation to make payments. Similar to redraw, repayment holidays are also availed when customers are ahead on loan payments.

    Secured Loans: It is a loan in which customers in debt can pledge assets as collaterals which generally act an insurance for the lender. The interest rates associated with these loans are relatively low.

    Term/Tenure: It is the total duration of the loan, from the time the customer borrows funds to the time he/she repays it in full.

    Unsecured Loans: It is a loan in which no assets are required to be pledged as collateral for the customer’s debt. The interest rates associated with these loans are slightly higher in comparison with secured loans.

    Variable Rate: It is a fluctuating rate of interest that is subject to change depending upon cash rate changes. The cost of interest repayment differs as rates change from time to time in a loan taken with a variable rate of interest.

    Car Loans, Auto Loans

    Car loans are taken out by customers who wish to purchase a new automobile. The funds can also be used to purchase second hand cars or make significant upgrades to your existing vehicle.

    Auto Equity Loan: Title loan as it is also known, an auto equity loan works in a manner such that their title is exchanged for the equity they have in their vehicle. Customers will receive the sum of money they need and once they have repaid the loan, the lender returns the title.

    Cash Back Refinance: It is a refinancing option that enables customers to use their vehicle’s equity to receive cash back when refinancing their car.

    Co-signer: An extra party who takes the same amount of responsibility for a car loan as the borrower.

    Credit: It refers to the customer’s credit history and indicates whether or not the customer has the potential to repay the car loan.

    Delinquency: It refers to making repayments towards your loan past the due date.

    Depreciation: The reduction in the value of a vehicle owing to wear and tear and age.

    Finance Charge: The sum of money that a customer will pay towards interest charges during the tenure of a car loan.

    Repossession: It happens when a borrower defaults on a car loan and does not intend on repaying the amount borrowed. In this case, the lender reclaims the car.

    Home Loans and Mortgages

    Home loans are dedicated to individuals who wish to construct their own homes or purchase an existing home. The funds can also be used to cover expenses arising from home repairs, home renovations and refurbishments.

    Appreciation: The increase in a property’s value from what it originally was.

    Capital Gain: The profit made by selling a property at a price higher than the price at which the property was originally purchased.

    Discharge Fee: The fee a customer must pay following the discharge of the loan.

    Home Equity Loan: The kind of loan wherein customers pledge the equity of their home as collateral. These loans are usually used to fund expenses like college education, medical bills or home repairs.

    Honeymoon Rate: These are introductory loans wherein the rate may be variable, capped or fixed for the first year of the loan. The standard variable rate becomes applicable at the end of a year.

    Loan to Valuation Ratio: The amount of money borrowed through the loan in comparison with the property’s value. For instance, if a customer has borrowed $320,000 and the value of the property is $400,000, the loan to valuation ratio is 80%.

    Mortgagee: The bank or financial institution that provides its loan services to customers/borrowers.

    Mortgagor: The individual or company that borrows money from a bank or financial institution.

    Portable Loans: These loans allow customers to sell their property and shift to a new one without the need to refinance.

    Pre-Approval: The written approval that a lender gives to a customer stating how much money will be lent, subject to the lenders terms and conditions.

    Service Fee: Generally a monthly charge that a customer must pay to cover costs related to maintaining and administering the loan account, that is variable and fixed costs like IT hardware / software, staff, etc.

    Valuation: The lender’s detailed professional report on the value of the property.

    Valuation Fee: The charge that may be levied if the lender wishes to cover costs related to valuation of the property which is pledged to acquire the loan.

    Additional Borrowing: Additional borrowing otherwise known as top-ups are when loan applicants take out a further loan on top of the mortgage loan which has already been completely disbursed. Applicants can avail op-up loans or additional loans based on their eligibility and type of mortgage availed.

    Assignment: This refers to the transfer of the rights of an asset or a property from one party or person to another such as transferring of rights of a property to a tenant through a leasehold agreement when property is purchased on a leasehold basis

    Buy-Out: When an applicant transfers their mortgage from one lender to another after making early repayment charges wherever applicable is called a buy-out.

    Equity: Equity is the difference between the value of a particular property and the total amount of loans availed against that property.

    Freehold: It is a title that acts as the most superior form of ownership of a particular piece of property and the person who holds this title is called a freeholder. They are the absolute holder of land and buildings represented by the title.

    Guaranteed Rate: It is the rate of interest that is applicable on one’s mortgage for a particular determined time frame after which the interest rate reverts to the prevailing interest rate or standard variable rate offered by the lender for the remainder of the duration of the loan.

    Investment Property: A particular property which is purchased by an owner not to be occupied but rather to be given out on rent or lease to generate additional rental income.

    Lien: Akin to repossession, a lien is a legal right of a lender to take possession of the borrower’s property in case the borrower fails to oblige the terms of the loan or fails to repay the loan.

    Market Value (MV): Normally assigned to property, the market value or MV of a property is the price the property will fetch in a competitive and open market that meets the needs for the property to be sold under a fair sale.

    Education Loans

    Education loans are primarily designed to help provide students with the financial support they require to complete their education and pursue higher studies.

    Capitalisation: The amount of interest that is unpaid and added to a student loan’s balance. Interest rates in the future are subject to change depending on the rise in principal balance, which may in turn increase the monthly payments you must make, thus meaning that there will be an increase in the total sum to be repaid.

    Cost of Attendance: The overall costs associated with attending school during the course of an academic year.

    Deferment: Students have a benefit when taking out student loans in the sense that they can stop making payments on a temporary basis. Interest is usually not charged on subsidised loans, but it will charged on unsubsidised loans.

    Disbursement: A part of the loan that is paid out by the school, either by paying the customer directly, or by applying the money to the school account of the student.

    Forbearance: In times of serious hardships, students are granted permission to extend, reduce or postpone loan payments. However, interest continues to accumulate so the amount you end up owing the lender increases over a period of time.

    Guarantee Fee: Lenders usually charge a fee (up to 1%) to guarantee or insure a student loan.

    Grant: These are monetary presents gifted to students who wish to pursue higher education. Grants are different from conventional student loans and require no repayment.

    Minimum Balance: It is the minimum funds that should be maintained in your account, as required by banks, to evade fees.

    Business Loans

    Business loans are tailored to help business owners meet their financial requirements. The funds can be used to start a new business, make improvements to an existing business, or even for meeting the day-to-day expenses associated with running the business.

    Annual Fees: As the name suggests, it’s a charge applicable to a borrower on an annual basis so that the lender’s administrative costs related to your loan can be covered.

    Line of Credit: It is a particular sum of money that can be withdrawn by the customer whenever required. It is similar to a credit card with the only major difference being that cash can be withdrawn without any penalties.

    Long-Term Debt: It is the sum borrowed to pay for large purchases such as equipment and real estate, which takes a significantly large period of time to repay. Customers require a string financial history if they want to qualify for long-term debt.

    Prime Rate: It is the lowest rates provided by banks to customers.

    Maturity: The maturity date of a loan is the amount of time granted to the customer to repay the funds borrowed. For instance, if a ten-year loan is taken in 2015, it will mature in 2025.

    Revolving Credit: It is essentially a line of credit. Even credit cards are viewed as a kind of revolving credit.

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    Loans also offer Discounts! Ever heard of Buyout Loans?

    Buyout loans are forms of banking transactions wherein banks and financial institutions re-issue already sold loans to new customers. These loans are offered to new customers at discounts, at times, and it’s also possible for multiple loans to be combined into one package that will be sold to investors as securities.

    Which are the best car loans of 2015 in the UAE?

    All the top banks in the UAE offer car loans at competitive rate of interest, flexible repayment options and a wide range of benefits for both new cars as well as used cars. But out of so many, which car loans do check all the boxes?

    Do the banks in the UAE offer car loans without any down-payment?

    Want to buy your dream car but don’t have enough cash in your pocket for the down-payment? If you live in UAE, then you are in luck! There are many financial institutions in the UAE which offer 100% of the loan amount, so you don’t need to pay any down payment from your pocket.

    Can the expatriates get a car loan in the UAE?

    Even if you are an expat in the UAE, you can still buy the car of your dreams with a car loan. All the leading banks in the UAE offer car loans for the expats. You will need to provide a little more information about you in comparison to a national, but it is going to be an easy business.

    Can NRIs in the UAE apply for a car loan in India?

    The banks in the UAE offer NRIs staying there to apply for a car loan, especially designed for them, in India for their family or for their personal use. The car loans are modified to make it easier for the NRIs to avail the loans.

    What should you know about the interest rates on Home Loans?

    The main factor while taking a home loan however is the interest rate. Home loans are easily available from various banks across the UAE and the interest rate that is applicable on these loans depends on the bank that offers that loan. It is the rate of interest on the Home Loan that affects the EMI and hence your monthly budget throughout the tenure of the loan.

    A Guide to Mortgages for First Time Property Buyers

    Planning to buy a property for the first time in your life and that too on mortgage? It is a huge expense and a massive commitment to get involved with. Hence there are certain things you will need to know about it before you can proceed.

    Mortgage Transfer to another Banks

    So unhappy that you feel like changing your lender? There are lots of things that make refinancing a mortgage a good idea and the chief among them is that if can help ease the pressure of monthly payments. You can also walk away with lots of benefits, depending on the bank.

    How to get cash finance at low rates against existing property?

    Did you know that you can avail finance by tapping into the positive equity of your property? Instead of letting your property to sit idle, you may use it to avail finances. Many banks provide cash advances against properties for a lower rate of interest. Using properties as a collateral will help get cash advances of a higher amount at a very low rate.

    Mortgages for Buying Commercial Property in the UAE

    One of the biggest challenge you face while starting a business is to acquire a physical location to be the workplace. But the challenges do not end here with the next one being to find the funds to acquire that place and that is where the mortgage for buying commercial properties comes in.

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