Smart Borrower's Guide

For most new expats or locals in Dubai, applying for a loan is one of the most important steps towards settling down or starting a business. Here are some tips for anyone looking into applying for a loan.

1. Be Patient

Don''t jump on to the very first offer you receive. Most of these are usually linked to your credit card. These loans yield high interest rates and you tend to pay an extremely high monthly minimum. It is recommended that you apply for a personal loan with the lowest interest rate.

2) Do your Research

Look at a minimum of 5-6 offers from both, local as well as international banks – often, quoted rates and benefits in local banks are better, since the government favors these banks to ensure their growth. Choose the best offer that suits your needs.

3) Interest Rates

Look for the lowest applicable rate on reducing principal amount. The "interest rate on reducing principal" rather than the "flat rate" is the process followed by most banks – not only in Dubai, but internationally. This falls under banking process and is widely common practice in banking.

4) Look for the hidden fees

Often banks say or offer zero processing fee, however, they might name it differently such as documentation charges or administrative charges. Clarify what other charges are applicable.

5) Pay Fees Separately

Try to pay processing/documentation/other charges separately. Some banks are notorious for adding up these charges into the principal, and then applying the interest while calculating the estimated monthly installment. Keep your monthly payments low by paying the fee separately.

6) Early Settlement Fee

Look for the early settlement fees, as banks tend to have a high rate for early settlement. Usually when a loan is approved and given, the interest charges on monthly basis serve as constant monthly incomes for the banks. Understand the early settlement fee before you sign the papers.

7) Make a Decision

Make an informed decision on your type of loan. While it may be necessary to have a car or a fancy home, the same could prove a liability a few months later if you decide to move from this country. Make sure you think about your needs and wants very carefully before jumping into a loan.