In this article, we aim to tell you all about the loans in UAE. We will go ahead and tell you what a loan is and all about how you can find the loan that is best for you and your credit score.
Introduction to taking a loan in UAE
When you take a loan from a bank or a similar financial institution, you have to be a party to an ironclad loan contract. This contract specifies all the attributes of the loan that you are trying to get from this financial institution. It contains the period in which you will have to repay the amount, the exact borrowed amount, the rate of interest that will be levied, and the collaterals (if there are any).
Hence, the rate of interest is the surcharge that the bank charges on top of the money that it lends to you. Once you pay back the entire principal to the bank, you also have to pay back an interest so that the bank profits by it. The borrower also needs to agree to a specific period in which the entire sum will be returned to the bank or financial institution.
Lenders are usually known for equating their loans to the bank by means of an EMI. This means that the borrower has to pay a fixed amount to the lender every month for a fixed amount of months or years. At the end of this period, the entire principal and the interest will be paid off.
Hence, there are a lot of people in the world who take loans to make their wishes come true. There are different types of loans. They are home loans, car loans, credit cards, and business loans. In the UAE, there are two major types of banks: conventional banks and Islamic banks. While the conventional banks follow internationally-accepted procedures while lending money, Islamic banks work as per the Sharia-law.
Types of loans in UAE
Since a loan is a very complicated matter due to so many variables, both in the numbers and in the particulars, experts have divided these loans into different types and categories. We have listed some categories of loans in the UAE for you to facilitate better understanding:
Open-ended and closed-ended loans
1. Open-ended loans
Open-ended loans are the ones that can be taken up by the borrower over and over again. Some instances of these pans are credit cards, bank overdrafts, and others. In this kind of loan, you have an upper limit for your borrows. Under no circumstances can you exceed the limit (unless you have the permission of the bank or your credit card company).
2. Closed-ended loans
Closed-ended loans are the ones that cannot be used time and again once they are repaid in full. The principal that is borrowed at the beginning cannot be made bigger either.
Conventional loans and Islamic finance
1. Conventional loans
These loans are offered by conventional banks that are established using procedures and laws followed by the Western or internationally-accepted laws of commerce and accounting. These conventional banks operate on a standard protocol of charging interest on the loan, depending on the principal borrowed and the time in which the money will be paid back.
2. Islamic finance
These Sharia-law following financial institutions charge a ‘profit’ instead of an interest. These institutions follow the fundamental laws of Islam and are strictly against charging an interest from the borrower.
Secured and unsecured loans
1. Secured loans
Secured loans have some collateral. These collaterals may be a guarantor or an asset. In case the money is not paid back to the lender, he/she/it may liquidate the collateral to retrieve the money that was lent.
Loan Against Rental Income
Loan Against Shares & Investments
Asset-backed Trade Finance
2. Unsecured loans
Unsecured loans are the ones that do not have single collateral or an asset that is held in escrow. All the financial institution or entity lender has in exchange of the lent money is the borrower’s guarantee or word.
- Credit Card Loans
- Personal loans
- Business Cash loans with collaterals
Here is everything you need to know about loans in the UAE. Please use this information carefully before you decide to take a loan for yourself in the UAE. Now that you are aware of the hard facts of taking a loan in Dubai, you are equipped to search out the best options for yourself in the vast market out there. We wish you the best of luck!