Best age to apply for a loan: Can I be denied a loan because of my age?

Dubai: Financial contingencies can arise anytime, and to arrange finance swiftly and speedily, people often resort to loans.

With the increased advancements made by the banks in the loan application and approval processes, the loan amount usually takes as little as 2 to 7 days to reach you. However, you have to meet certain eligibility standards to qualify for the loan.

Some important factors that decide your personal loan eligibility are your credit score, monthly income, job stability, age and finally, the age limit required for the loan you are applying for.

How does age affect your loan eligibility?

It can be said that there is an inverse relationship between a loan’s age limit and loan eligibility. The younger you are, the more are the chances of seamlessly sailing through the loan-sanctioning process.

However, this may not always be true. Let's look at three aspects of a personal loan where the age of an applicant plays an important role.

• Relationship between age and loan tenure

For short-term loans, the tenure usually ranges from minimum 1 year to a maximum of 5 years, if not more. A younger applicant is considered to have more employment and earning opportunities against an older applicant.

Therefore, if you are in your 20's, you are more eligible to get a loan of a longer tenure as compared to someone who is in the 50s. Similarly, tenure of the loan can also be extended in case of a younger applicant.

• Relationship between age and loan amount

Just as tenure, the loan amount approved is also based on the age factor. A younger applicant with a similar profile can get a higher loan amount approved compared to an older applicant.

• Relationship between age and interest rate

The age of the applicant has an indirect impact on the interest rate offered by the lender. The interest rate offered depends on a few essential factors, such as credit score, income, etc.

A very young applicant may not have a good income as he or she may be new to a job or may not have a good credit score because of lack of credit history, which may impact the interest rate offered negatively.

On the other hand, those who have had 5-10 years of work experience are known to have a well-build credit history which can act in their favour when negotiating for interest rates.

Which age is best to apply for a loan?

When it comes to purchasing a home or a car, most people do not really have the luxury to become home owners or vehicle owners by making a full, up-front payment.

The loan needs to be repaid over a period of time; typically within 5 years for a vehicle loan and within 20 years for a home (or more, depending upon the lender), in which one has to pay monthly payments. As such it is a good idea to go for the loan when you are employed.

The right time to purchase the home or a car actually depends upon the individual buyer; when he is comfortable to bear the expenses of the loan.

Typically, it is better to go for the long-term loan when you are in your mid-to-late twenties or early thirties as this is the time when you are well employed and able to pay monthly payments from your monthly income.

Also, you are able to finish paying off your loan by the time you are in your 40s and can think of purchasing a second property, car or invest in retirement, if you so choose.

That said, you can also take out a loan later in life, when you feel you have saved enough to make a larger down payment and pay smaller interest rates. Lenders typically set a different age limits for loans; staring at 24 years of age up to when borrowers in their 50s.

Why do your chances to get a loan reduce as you grow older?

However, data from UAE banks have showed that about 50 per cent of its borrowers fall into the 30-40 age bracket, nearly 30 per cent were in the 40-50 group and almost 20 per cent are 50-plus.

These figures suggest there is a definite market for older borrowers in the UAE, but younger loan applicants are often favoured over older ones when it comes to loan terms and risk to the lender.

For instance, a mortgage is a long term loan that often stretches to 25 years. Unlike shorter loans with terms such as three or five years, a mortgage taken out later in life can have a real chance of continuing past retirement and a regular salary – an increase of risk for the lending institution.

Previously, the UAE Central bank imposed a limit on the age of the last repayment: 65 years old for those employed by a company, and 70 for the self-employed. However, the cap no longer applies since 2018 in the UAE.

This meant that any employee looking for a 25 year mortgage had until their fortieth birthday to secure the finance. Getting a mortgage after age 40 meant looking at shorter term loans, raising the cost of each monthly repayment and having a significant impact on any affordability checks.

Why is age an important eligibility criteria for availing a loan?

While the repayment tenure of loans differ, an applicant who is at his or her young age gets the flexibility to select the repayment tenor, but things are not same with the older applicant since the banks or lenders becomes attentive for the applicants who are in their older age.

In such situations, the only feasible option that is left to increase their monthly instalments (EMIs). However, an increase in EMIs can be tough to handle especially when you have a fixed source of income or when you have plenty of responsibilities.

A young applicant gets more time to make repayment of their loan whereas an older applicant will get less time to make the finance repayment. The reason behind this is very simple and straightforward.

A borrower in his 20s or 30s has enough time to earn more as compared to the one who is in his or her 50s. Additionally, lenders tend to believe that the younger applicant’s earning will continue to increase in the coming years thus lenders ready to give a younger applicant an extension in their finance tenure.

While the old applicant may not get an extension in their finance repayment tenure since he or she close to his or her retirement age as well as the chances of increasing their income are very less (in case of salaried individuals).

Also, a younger applicant’s loan amount is generally not high. That said, they might want to borrow money to fund an overseas trip, make a down payment of his vehicle, take it for a medical emergency or to buy something expensive.

However, the priority of older applicant changes, they take it for the wedding of their children, starting a new business, or making a down payment of their home loan, and so forth. This is why lenders become extra careful with the older applicant as risks are high with the older applicants.

Key takeaways

1. When it comes to consumer finance in the UAE and beyond, age is always considered one of the most important factors since lenders consider this factor to check your finance repayment ability.

2. If a loan or a banking facility's repayment period extends to the retirement age, as per UAE Central Bank norms, banks and finance companies must re-schedule reduction of these loans or finance facilities in a way to allow a deduction of only 30 per cent of post-retirement income or pension salary.

3. Henceforth, when you finally decide to opt for loan, do not just focus on the loan interest rate but also check that your age is in your favour or if it is a hindrance to your loan application.