Availing credit from banks or loan providers, when there is a need for money either due to an urgent requirement or to make a big planned purchase is now par for the course. While banks are doing their best by offering competing rates, there are certain factors you need to think about before you sign up for a personal loan and embark on the journey of repaying your debt on a monthly basis.
Do
1. Stand firm on your loan rationale
There might be various reasons you need that money. If the need is indispensable, only then consider taking a loan. When you get your credit standing rated, it is important to have a solid reason to explain all the borrowed money.
2. Know your payment capacity
To know where you stand in terms of finances, you have to figure out three things. How much do you earn, spend and save each month. Once you arrive at a figure, positive or negative, you will know how much you will be able to pay every month, if you get a loan. The loan amount should be determined by how much you can actually pay towards clearing your debt every 30 days. Work out your repayment amount with our Repayment Calculator.
3. Measure the differences between all options
Comparing is a must. You need to know every loan available to make the best decision suited to your payment capacity. The best bet is to take all options and compare them for their APRs (Annual Percentage Rate), and interest rates. Just give us the maximum financial amount, select the bank, enter your salary and the tenure of loan on Dubai Finance and we will show you a detailed comparison of all the personal loans in the UAE.
4. Check your Credit rating
A credit report determines whether or not your bank will lend you the money you need. The credit report will have all details of your existing or past debts, credit cards, loans or any bounced cheques. The report will also show how well you stand in terms of credit at present so your personal debt repayments do not have to be more than 50% of your income.
5. Understand all the terms and conditions
Make sure you know all the terms in thorough detail, so you know whether or not you’re eligible for the loan you’ve selected. It also helps to know the charges and fees so you’re not caught off-guard!
6. Negotiate with the bank
Find out and ask for a better rate from your bank for the loan you want to apply for. Banks might give a better rate as they would want to retain you as a customer.
7. Give a thought to a credit card over a loan
Consider getting a credit card with a 0% introductory offer instead of a loan. One of the benefits will be that you will be able to spread your costs, without interest. You might get the credit card at a cheaper cost than borrowing money. But, choose this option only if you are positive about paying the debt within the offer period.
Don’t
1. Don’t take more credit than you need
When you know what you need the loan for, you have to be quite controlled and only borrow what you need. The idea of credit might be appealing to you right now, but it isn’t pleasing to end up deep in debt.
Besides it’s not a fancy proposition to avail a higher amount of loan only for a low interest rate. True, higher amount of debt comes at low interest, but your principal is still higher and you will be shelling out more money for repayment.
2. Don’t dabble with too many loans
Many loan applications will not look good on your credit report. It spells bad news about your financial situation. Not only will it have a negative impact on your credit score, you might not get any loans approved if there are a lot of outstanding debts.
3. Don’t take payment protection insurance unnecessarily
Payment Protection Insurance is the sum of money you will pay towards insurance that will help you cover your monthly repayments on loans or mortgages and credit cards if you are unable to work for certain reasons. While lenders will offer this service to you when you are taking the loan, you might not need it. Weigh the benefits against the extra money you will be paying every month towards that cover, and determine whether it will be productive or counterproductive.
4. Don’t get charged for paying early
You might be charged an early repayment fee if you clear off your loan earlier than the stipulated time period. Paying early would need a lot of financial discipline to adhere to, but if you think you might be able to pay yours early, carefully choose a loan which does not have early repayment charges.
5. Don’t pay late
Set a schedule, make sure there’s enough money in your account for your monthly repayment at that time, and stick to it. Missing payments on personal loans can cost you higher interest charges. Pay on time, every time!
