Personal loan rates in UAE post slight decline in October

Dubai: The price of borrowing money in the UAE has edged lower recently compared to a year ago, with the cheapest personal loan deal now costing just less than 5 per cent.

This could be good news to some consumers who are running short of cash, as lending conditions had recently tightened amid rising debt levels and economic uncertainty.

According to the data compiled by Souqalmal, a comparison site, interest on salary transfer loans averaged 6.62 per cent in October, down by 7.54 per cent over the same period last year.

Non-salary transfer borrowings now cost 13.29 per cent per year, about 10.81 per cent cheaper than 12 months earlier.

Borrowing activity has been on the rise, with the average resident carrying a debt burden worth Dh42,600. As of June this year, the total amount of personal loans reached Dh430 billion, up from Dh400 billion in the same period in 2015.

Data released by another comparison site showed that the cheapest deal for salary transfer loans is 4.74 per cent, but some banks are still charging borrowers higher lending rates at 11 per cent to nearly 20 per cent.

Preeti Bhambri, founder of MoneyCamel.com said that only the costs of salary transfer loans have stabilised. Borrowers who don’t have salary transfer accounts still stand to pay as much as 19.99 per cent in interest per year.

“Banks are becoming more cautious of risk attached to non-salary transfer loans, and as a counter measure, they have increased interest rates and minimum salary eligibility for these loans,” Bhambri told Gulf News.

She also cautioned that rates are likely to increase in 2017 not only because the International Financial Reporting Standards (IFRS 9) will be implemented in January. Funding costs are expected to rise as well, as financial institutions compete for deposits.

“IFRS 9 can affect banks that follow a conservative reserve for bad debts. On paper, most UAE banks have gradually been increasing provisioning for bad debts and as such may not be largely impacted by implementation of IFRS 9 alone,” Bhambri said.

“In conjunction with cost of funds and other factors, personal loan rates are expected to increase in 2017.”

Source: Souqalmal.com