You’ve decided to take out a personal loan. Home improvements, a family holiday, a wedding to pay for… but how to choose the right one for you? (loan not spouse!) With so many options on the market and alluring offers coming at you from all directions, you can easily be drawn into the glitz and glamour of a promo rather than focusing on details that really matter.
Ultimately, your individual needs and situation will determine the right personal loan product for you but below are the key criteria to consider. Other than that, just compare, compare, compare! Use our smart comparison tools to identify the perfect product for your needs.
• Look for the lowest interest rate that you’re eligible for
• Don’t be fooled by interest rates that look too good to be true – if they look too good, then they probably aren’t true!
• Make sure you clarify whether ‘flat’ or ‘reducing’ interest rates are being stated and more to the point, make sure you understand the difference. In a nutshell, flat interest rates are normally lower than reducing balance rates and are therefore considered misleading. When it comes to comparing loans, the best way to compare their true cost is to convert everything into the reducing interest rate. Click here for an article that goes into this in more detail (Click to)
• Check also that a very attractive interest rate on offer is carried for the duration of the loan. Often banks may advertise a super low rate that only applies for the first year of the loan. Thereafter, the interest rate significantly goes up
Islamic or Conventional finance
• There are lots of Islamic finance products out on the market today whereby banks buy the product and sell it to their customer, at an agreed profit after the monthly installments are completed. Customers are not charged interest. Click here for an article that goes into this in more detail (Click to)
• Whilst some customers may wish to choose Islamic finance products for ethical reasons, as the Islamic financial market has matured, the differences between Islamic and non-Islamic loan products have narrowed considerably so we suggest you compare both directly and simply work out which will benefit your individual needs most
• Unless you can guarantee your job and the financial security that goes with it, then you should consider taking insurance
• Find out whether your potential loan provider provides insurance. Sometimes the insurance payments can even be added on to the principle loan amount
Your bank or another
• If you take a loan from the bank where your salary is paid to, you’ll benefit from better interest rates, simply because you’re seen as less risk. So ensure you explore the loan options from your own bank and if you end up choosing another provider, perhaps it’s worthwhile moving your ‘salary’ account?
• UAE banks have maximum loan amounts and minimum salary requirements for each of their loan products so be sure to rule out any banks to which you’re eligible anyway
• What are the arrangement fees? Is the arrangement fee a fixed sum or a percentage of your total loan amount?
• And the processing fees?
• What about the settlement fees?
• The UAE Central Bank has regulated the fess and charges commonly associated with loans. Early repayment fees, for example, cannot exceed 1% of the outstanding loan amount but some banks may charge less than this so if you might be in a position to repay the loan early, take this into account
• What about if you make a late payment? What are the penalties involved?
• What if you wish to take a payment holiday?
• Or transfer your loan to another provider?
• The loan itself must be considered long before any freebie rewards but sometimes there really are great gifts on offer from free holidays to gift vouchers and more so do weigh up the value and benefits to be had from these as well.