A personal loan is one of the most convenient ways to obtain financial assistance in times of need. Instead of digging into your savings or deposits, you can opt for a personal loan in UAE for the financial help that you need the most. The personal loan is unsecured. An unsecured loan is one in which the borrower agrees to make regular payments to the lender, but no assets or collateral such as a house or car have been pledged as security.
However, to apply for a personal loan in UAE, there are few essential things that you need to keep in mind. This includes, for example, how much you can borrow from the lender. Lenders have different types of loan arrangements. The size of a personal loan ultimately depends on several different factors.
Below are some of the most important factors that the lender needs to consider before deciding whether to approve a loan application.
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Credit Score
Your credit score tells the lender whether you are a good or bad credit risk. The higher your score, the lower the risk, as far as the lender is concerned. While your credit score is not only the deciding factor of the loan amount, it plays a significant role. The better your credit score, the more the lender is likely to approve.
If, for example, you have defaulted on a previous debt, you are much less likely to have your application approved. Moreover, a bad credit score will also affect the personal loan interest rate & favorable tenure. That is why it is very important to maintain a good credit score. Lenders also look at the credit history of somebody who applies for a loan.
Video – Credit Score
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Income
Your monthly income is probably the most important factor of all. It tells the lender how much you can afford to pay back each month.
- Your monthly earnings determine whether the financial institution will lend you the amount you applied for. The higher your income, the greater your chances will be.
- You will also be eligible for a flexible and convenient loan tenure.
- You are more likely to be offered a competitive interest rate if your monthly income is high.
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Debt-to-income Ratio
Banks calculate your debt-to-income ratio or DTI ratio by dividing your monthly debt payments by how much you earn each month. We express this ratio as a percentage. The lender uses this ratio to determine how well somebody manages their monthly debt repayments and whether they would be able to meet the repayments on a new loan.
If you already have some debts, the lender might consider you as a liability. If this is the case, you are less likely to have your loan application approved.
Do not confuse this term with debt-equity ratio, which we use for companies.
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Loan Purpose
Some lenders will ask you what you want the money for. It is important to be honest when you answer this question as this could significantly impact your loan contract as well as the interest.
You might need the money to pay for unexpected medical expenses, a funeral, a vacation, a wedding, college fees, or to renovate your home. Some people take out a personal loan to consolidate several different debts into one (debt consolidation loan).
Personal Loan Calculator: How Much You Can Borrow?
The UAE typically can lend up to twenty times the applicant’s monthly salary. However, not all lenders are the same. In other words, how much they are willing to lend varies.
Did you know that you can find out how much you much be able to borrow? Most lenders have a ‘Personal Loan Calculator’ which can give you this information, based on your credit score and monthly income.
Using the Personal Loan Calculator
Applicants should follow the steps described below to complete the sections in the Personal Loan Calculator. If a section does not apply to you, leave it blank. For example, if you do not have a car loan or you are not a landlord, don’t fill in that part.
- Under ‘Loan details’, write how long you want the loan repayment period to be.
- Next, to Interest, fill in the rate of interest you think you can qualify for.
- Under the Income section, you need to select your income frequency and how much it is.
- Under Expenses, enter how much you pay each month toward other loans and credit cards.
- Click on Calculate.
You will then have a good idea of how much you are likely to be able to borrow. The data you input will also determine your loan tenure and its likely interest rate.
The Final Word
The Personal Loan Calculator will give you an approximate figure. Not every lender has the same minimum and maximum loan range. However, they all take into account your credit score, monthly income, debt-to-income ratio, and what you want the money for. In some cases, lenders might want details on your academic qualifications and your job before deciding whether to approve an application and how much to lend you.