Image Credit: Supplied

With so many beguiling retail outlets in the region, it’s easy to get carried away with consumerism at any time of year, not just during the festive season. However, whether you have shopped until you dropped, spent too much money dining at your favourite restaurants, or racked up hotel bills during a family vacation, now is the time to consider getting your finances in order, which might just mean taking out a personal loan.
“This is often the time of year that people review their financial affairs and look to take out a loan for a variety of reasons — to tidy up different smaller loans, reduce interest costs or [pay for] new purchases,” says James Thomas, Managing Partner, Acuma, a wealth management firm.

Big on numbers

Personal loans are big in the region’s banking sector. Philip Antony Byrne, Head of Products, CBI, says the size of the UAE’s personal loan book, reported in the latest monthly Central Bank updates is close to Dh311 billion. Moreover, the number of residents taking out personal loans appears to be rising exponentially with the total amount of borrowings increasing by almost 12 per cent year-on-year, according
to the UAE Monthly Banking Indicator for the last quarter
of 2014.
Despite this, personal loans are not necessarily the easy option, particularly when it comes to paying off a credit-card debt.  “I would be hesitant to say that consumers should use a loan to pay off credit-card debt. The best action would simply be to repay the debt in a controlled manner,” says Thomas. “However, I accept that circumstances may prevent this, in which case, a loan can offer a solution if used sensibly — that is to pay off the high-interest credit-card debt and then stop using the card. Also, be aware that the loan will have fixed monthly repayments. You cannot pay a minimum amount with a loan, it needs to be the same amount each month.”
Factors to consider
Before signing up for a personal loan, Thomas says there are some factors to examine. “Firstly, consider if you really need to borrow the money. Is there an alternative solution?”
For those consumers who do need to borrow the money, and for whom it is vital to take out a personal loan, the advice is to do some research.
“There are often deals being offered by various banks, so it pays to shop around to find the best deal, as well as speaking to your own bank as they may be offering better rates to existing customers,” Thomas says.
Research into interest rates shows there are huge variations — anything from 4.99 per cent through to 24 per cent, he adds. Shopping around could make a massive difference.
One way to compare interest rates easily, and from the comfort of your own home, is through Compareit4me.com. This popular web portal lists myriad offers from the leading banks in the UAE, allowing users to easily compare hundreds of personal loans, credit cards, car loans and more.
 “Having all this information in one place means users can easily find the best rates and products that best suit their lifestyle,” says Jon Richards, CEO, Compareit4me.com.

Best deals

Richards says the best interest rate available right now is
as low as 2.63 per cent from Emirates NBD.
“The loan is available to all UAE residents with a salary of Dh8,000 and above,” he says. “Abu Dhabi Islamic Bank also has a good offer, which starts at only 3.3 per cent. This is available to all UAE residents with a minimum monthly salary
of Dh5,000.”
With interest rates varying, it pays to look at other offers too, which could prove lucrative as well. HSBC, for example, is currently offering discounts on arrangement fees.
Raman Muralidharan, Regional Head of Customer Value Management, Retail Banking and Wealth Management, HSBC, Middle East and North Africa, explains, “As part of a new campaign that we have just launched, customers can enjoy 25 per cent off on the standard processing fee.”
While offers such as this can help cut costs, it pays to be aware of all the fees involved when taking a personal loan, such as the processing or arrangement fee, which is normally 1 per cent of the loan amount. The total fee, which is determined by the Central Bank, is subject to a minimum amount of Dh500 and a maximum of Dh2,500.
Thomas says that although being able to repay the loan is the most important factor to consider, another critical aspect is to carefully review the terms and conditions.
“Check if the interest rate quoted is the flat rate or the more accurate annual percentage rate. What is the term, what will the monthly repayment amount be, and are there any penalties if you wish to repay the loan early?”
Circumstances can change for anyone, so repaying a loan early can often be necessary. The early settlement fee is usually 1 per cent, which is also set by the Central Bank and consistent across the market.
“Customers looking to make early repayments must meet the standard pre-payment fees that are in line with Central Bank guidelines, so [at HSBC] we advise them to apply
for loans that are specific to their individual requirements,” says Muralidharan.
HSBC offers a maximum tenor of 48 months. “We
offer tenor-based pricing for loans, which allows people to take advantage of lower rates on shorter tenors,” he adds.
Once you decide which personal loan is right for you, the process for new loans is simple and most customers can expect their applications to be handled quickly, says Byrne.
“[But] we see longer processing in the case of loan buyouts from other banks where a liability letter and subsequent clearance letter are required from the previous bank.”
Although this might take a longer time, swapping an existing bank loan for one with a lower interest rate can be a wise option for those finding it difficult to pay it back.

Debt management

“If people are struggling with debt, then they need to research all possible options to ensure they get repayments of a manageable amount,” says Richards. “The key to debt management is to be proactive and not bury your head in the sand. Debt won’t just disappear, so it’s important you tackle it head on.
“Look for better rates than you currently have. If you have multiple debts such as credit card [bills] and car loans, consider consolidating all of these into one loan. If all else fails, speak to existing creditors and see if they can help you with a payment plan.”
Shopping around for the best deals, taking an affordable loan and ensuring you read the fine print will hopefully help to keep finances on track. If you get it right, then 2015 could just be the best year for your
finances yet.