How to Get the Best Rates on Personal Loans?

Personal loans have emerged as versatile financial instruments that offer a gateway to materialise dreams and tackle unexpected expenses. The UAE's thriving economy, cosmopolitan culture, and vibrant lifestyle make personal loans an attractive choice for residents seeking to fulfil their ambitions — whether it's setting up a new venture, pursuing higher education, or simply embracing life's pleasures like travelling and more.

Trying to get the best rates on a personal loan in the UAE is not only a prudent financial decision but also a strategic step towards optimising your borrowing experience. With a myriad of financial institutions vying to assist you in realising your goals, it's crucial to navigate the intricate realm of personal loans intelligently.

This comprehensive guide will unravel the secrets to securing the most favourable personal loan rates in the UAE, empowering you with the knowledge that can potentially save you both time and money.

Factors that Affect Personal Loan Interest/Profit Rates in the UAE

Discussed below are the major factors that affect your personal loan interest/profit rates -

Salary -

Your salary significantly affects the interest rate on your personal loan. As people with higher incomes are seen as more capable of repaying loans, they often receive lower interest rates on personal loans.

Employer's Reputation -

The reputation of your employer is a crucial factor influencing personal loan interest rates. Even the lenders known for offering the best personal loan rates first assess your employer's reputation.

If your employer is reputable and financially stable, your application is given further consideration. This is because borrowers from respected companies are seen as responsible and financially reliable when it comes to making timely payments.

Credit Score -

Before granting a loan, UAE personal loan lenders review your credit score. Your aecb credit score is a combination of factors like your credit usage, payment history, credit age, recent credit sources, and more.

Your credit score is pivotal in getting your personal loan approved. It provides a snapshot of your overall financial health, including existing debts, income, borrowing habits, and other aspects.

It also showcases how you manage your debts and repayment schedule, whether you make timely payments, and so on. Your current personal loans won't affect your credit score if you pay your EMIs on time.

A solid credit score builds trust and can lead to lower personal loan interest rates. While each bank may have a different score requirement, a credit score of around 750 can be considered good to get the best rates on your loan.

Loan Repayment History -

In addition to your credit score, lenders review your history of repaying loans if you have active ones. If the lender sees that you've been disciplined in your finances and consistently make on-time loan payments, they may approve your loan and offer favourable interest rates. 

Conversely, those who have missed loan payments may face difficulties in getting their personal loan approved.

Debt-to-Income Ratio -

Your debt-to-income ratio is another factor that significantly impacts personal loan interest rates. If you have a high monthly income but a significant portion is used to repay debts, your current debts will influence your personal loan's interest rate.

You can calculate your debt-to-income ratio by dividing all your debts by your total income. A higher ratio indicates that you have a considerable amount of debt to manage. In such cases, lenders might impose a higher personal loan interest rate.

Relationship with the Bank -

Customers who maintain strong relationships with their bank typically enjoy lower personal loan interest rates. If you hold active savings, current, or fixed deposit accounts with the bank, you may benefit from their trust. Several banks offer attractive deals with reduced personal loan interest rates to loyal existing customers.

How to Get the Best Rates on Personal Loans?

A personal loan serves as an excellent financial product for addressing various financial requirements, as it does not require collateral, gets disbursed rapidly, and requires minimal documentation.

Let’s now understand how to get the best rates on personal loans -

Maintain an Optimal Credit Score -

A credit score nearing 900 is regarded as a strong one. A higher credit score enhances your chances to access new credit and enables you to secure the desired loan amount with a favourable repayment period and reasonable interest rates.

Typically, individuals with higher credit scores can obtain personal loans at lower interest rates. This is because a robust credit score signifies responsible credit behaviour and heightened creditworthiness.

You can uphold a favourable credit score by promptly settling debts, keeping your credit utilisation ratio below 30%, maintaining a balanced credit mix, and refraining from initiating numerous loan inquiries with multiple lenders, which can lead to multiple hard inquiries on your credit report and indicate excessive credit seeking.

Maintain a Good Repayment History -

Try to fully clear loan EMIs and credit card bills on time. This practice cultivates a positive repayment track record, which, in turn, empowers you to negotiate improved interest rates on personal loans with the lender.

Compare Interest Rates Across Various Lenders -

When you meet the personal loan eligibility criteria of multiple banks, it's prudent to explore an online financial marketplace and evaluate the diverse offers. This approach assists in securing the most favourable deal.

Be Aware of Special Promotions -

When applying for a personal loan, be attentive to special promotions, particularly those unveiled during festive seasons. Banks frequently roll out enticing schemes with lower-than-usual personal loan interest rates, which can lead to long-term savings on loan repayment expenses.

Cultivate a Strong Relationship with the Lender -

Cultivating a positive relationship with a bank or lender may allow you to get a personal loan at a discounted interest rate. This is because the lender will be familiar with your responsible credit conduct, which diminishes the perceived risk compared to lending to a new customer.

Scrutinise Interest Calculation Methods -

It's advisable to scrutinise the interest calculation methodology employed by specific lenders for personal loans. While loans might be presented with lower interest rates, the overall interest amount paid by the loan's conclusion could be higher.

Lenders offer loans either at a flat interest rate, where interest accrues on the entire loan principal throughout the tenure, or a reducing interest rate, where interest is based solely on the outstanding principal. Opting for a personal loan with a reducing interest rate could result in lower overall costs compared to a flat interest rate and vice versa.

Maintain a Favourable Employment History -

A prolonged and stable employment history not only enhances your personal loan eligibility but also contributes to securing a lower interest rate. Lenders frequently mandate applicants to possess a minimum two-year employment history, including at least one year with their current employer.

Individuals employed by reputable public or private organisations as well as government entities are often extended personal loans with more advantageous terms and lower interest rates. This preference is due to the perception that such applicants hold stable employment and income, which reduces the likelihood of loan default.

Things to Consider When Selecting a Personal Loan with an Affordable Interest Rate

When choosing a personal loan with a reduced interest rate, make sure to take some additional aspects into account - 

• Processing Fee - Lenders impose a one-time fee called a processing fee, which can add to the total loan cost. Even if you're offered a low interest rate, it's important to examine and compare the processing fees across different lenders.
• Pre-Closure Charges - Some banks might charge a pre-closure fee if you pay off the remaining loan amount before the loan tenure ends. Make sure to confirm whether the bank or financial institution you're applying to has a pre-closure charge.
• Customer Service - To ensure a positive borrowing experience, it's vital to apply with a lender that provides excellent customer service. Prior to submitting your loan application, assess the available customer support channels and the lender's responsiveness in providing assistance when needed.
• Eligibility Criteria - Although a bank or financial institution may offer personal loans at a low interest rate, you should verify whether you meet the lender's eligibility criteria. This includes verifying if your income aligns with the set limit and whether you satisfy the specified age requirements.
• Loan Disbursal Time - If you urgently require a personal loan, take into consideration the time that it takes for the loan to be disbursed. Numerous leading banks and financial institutions may disburse funds within a matter of seconds.
• Additional Fees -  Although a particular lender's interest rate could be a bit elevated, the total expense of the loan can be lowered in case the following extra costs are kept to a minimum — processing fees, fees for defaults, charges for prepayment, costs for loan cancellation, charges for bounced checks or EMIs, fees for returned instruments, stamp duty expenses, charges for duplicate statement issuance, swap fees, and costs for duplicate amortisation schedule issuance. Before submitting your application for a personal loan, it is essential to make a thorough comparison of these diverse fees.
• Negotiations and Discounts - Even if the concerned bank or financial institution states a higher interest rate, you can always attempt to negotiate for a lower rate. Often, lenders provide discounts to existing customers or those who have maintained a positive relationship, individuals with high credit scores and excellent applicant profiles, and more 
• Special Offers - Some lenders might offer a reduced interest rate during festive periods.

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