UAE residents rethink loans, credit cards as rising costs change borrowing habits

Dubai: UAE consumers continue to borrow, but their choices are changing as higher interest rates, rising living costs, and economic uncertainty push households to prioritise affordability.

Bankers and financial analysts Gulf News spoke with said demand for credit remains present, particularly for property purchases and essential financing. However, borrowers are becoming more cautious about discretionary spending and taking on additional debt.

At its June 2026 meeting, the US Federal Reserve held its benchmark interest rate steady at 3.50 to 3.75 per cent for the fourth consecutive time. However, the tone from Fed Chair Kevin Warsh shifted significantly hawkish, hinting at a potential rate hike in the future.

Following the Fed's announcement, the Central Bank of the UAE (CBUAE) mirrored the move, maintaining the Base Rate for the Overnight Deposit Facility (ODF) at 3.65 per cent, as the UAE dirham is pegged to the US dollar.

Louay Joha, Financial Market Analyst and Founder and CEO of Black Stocks Global Inc., said geopolitical uncertainty and higher borrowing costs have made some consumers more cautious.

“Consumers appear to be more selective with major purchases, but demand has not disappeared,” he said.

He said households continue borrowing for vehicles, housing, education and lifestyle needs, particularly among middle- and higher-income segments.

“Demand has moderated compared to the exceptionally strong post-pandemic recovery period. However, overall credit demand remains healthy, especially in mortgages and auto financing, supported by continued population growth and economic activity,” he said.

Joha said there are isolated signs of pressure among lower-income households due to the higher interest-rate environment, although widespread debt stress remains limited.

Analysts said housing continues to be one of the strongest areas of credit demand in the UAE, with more residents looking at property ownership as a long-term financial decision.

Joha said there is growing interest in asset-backed borrowing, particularly for real estate purchases and wealth-building opportunities.

Sandeep Jadwani, Head of Investment Advisory at H Capital Ltd., said borrowing patterns are shifting away from discretionary purchases towards more secured forms of credit.

“UAE households are not deleveraging. They are becoming more selective,” he said. “Credit is still expanding, but demand is shifting away from discretionary autos and marginal borrowers toward cards, personal loans, and property-backed borrowing.”

Jadwani said banks are paying closer attention to borrowers’ income stability, income growth and debt servicing ratios as household expenses rise.

“Since schooling, healthcare etc are increasing this will impact the debt-service-ratio (DSR),” he said.

The debt service ratio measures how much of a borrower’s income goes towards repaying debt. Banks typically use it when assessing whether a customer can comfortably take on additional financing.

He said the pressure point to watch is affordability among middle-income expatriates facing higher rents, school fees and lifestyle costs. While Dubai's education authorities have frozen tuition rates, the actual cost of schooling continues to rise as students advance through grade levels.

In Abu Dhabi, residents have some respite as the government has suspended rental increases until further notice.

Expatriates remain a key segment of UAE borrowers, analysts said, particularly as more residents establish longer-term roots in the country.

Joha said younger professionals, skilled expatriates, entrepreneurs and higher-income earners are playing an increasingly important role in driving credit demand.

“The UAE’s ability to attract global talent continues to support lending activity,” he said.

Jadwani said the strongest demand is coming from salaried individuals who are not yet heavily leveraged.

He added that workers in sectors such as healthcare, energy and technology continue to be viewed favourably by banks, subject to credit assessments.

While traditional loans remain an important source of credit, younger consumers are increasingly turning to digital borrowing options.

Jadwani said buy now, pay later schemes are likely to see increased adoption compared with traditional personal loans.

He said younger consumers are using these services as an alternative route to accessing short-term credit.

The UAE Central Bank’s interest rate decisions continue to influence borrowing costs.

Joha said maintaining stability in rates gives households and businesses greater certainty when making financing decisions.

“Consumers are unlikely to see significant immediate changes in borrowing costs, allowing households and businesses to plan financing decisions with greater confidence,” he said.

Credit demand is not limited to households. Analysts said companies continue to seek financing for expansion and investment.

Jadwani said businesses and individuals with stable income profiles continue to have access to lending, while banks remain more cautious when assessing repayment capacity.

Samer Hasn, Senior Market Analyst at XS.com, said borrowing activity has continued despite regional uncertainty, with UAE Central Bank data showing continued growth in lending.

Soon after the US-Israel-Iran war broke out in February this year, Central Bank of UAE Governer Khaled Mohamed Balama assured that the UAE’s banking and financial sector "continues to demonstrate the highest levels of resilience and stability."

Total assets of the UAE banking and financial sector now exceed Dh5.42 trillion. And in response to the conflict-related operational and supply chain disruptions, CBUAE had rolled out a massive Dh1 trillion asset-backed Financial Institution Resilience Package in March.

Senior officials at the United Banks Federation (UBF) - a professional body of banks and financial institutions operating in the UAE - said the sector remained profitable and liquid despite ongoing tensions.

Analysts expect UAE credit demand to remain supported by population growth, economic activity and property demand.

However, the next phase of borrowing is likely to be shaped less by rapid consumer spending and more by affordability, income stability and careful financial planning.