Dubai: Looking to borrow money for your master's degree, wedding, medical bills, or a new car in Dubai? If your savings are insufficient, you might consider applying for a loan from your bank.
However, banks often check your credit score, which can become an issue if you are a new expatriate who could not transfer your home country’s credit history or a recent graduate who does not have a credit history yet.
Personal finance experts interviewed by Gulf News revealed that it is possible to apply for no-credit-check loans in the UAE, as banks consider other criteria as well, when issuing a loan. However, they advise caution and recommend thinking twice before borrowing.
Here is how to navigate the UAE's financial landscape and achieve financial success.
Is it possible to get a loan without a credit history?
Obtaining a loan without a credit history in the UAE is possible, but there are certain caveats to consider, according to Ambareen Musa, founder and chief executive of Yabi, a UAE-based financial literacy platform.
“It is possible to get a loan without a credit history but it is not at all common. First of all, there is a wait of six months, if you are new to the country and have no credit history. Some financial institutions may make exceptions but that would be attached to higher rates or other collateral,” she said.
If you do not have a credit history, banks will look at other points of reference.
“They will normally look at other variables like the place you work - how secure is it, your salary, what assets you have, [or] potentially make a call to your employer,” she said.
If you do not have a credit history, they [banks] will normally look at other variables like the place you work - how secure is it, your salary, what assets you have, potentially make a call to your employer.
What is credit history and how does it work?
“Credit history as it says is the history of your management of money. So, if you take on credit through a credit card or a loan, the credit history is created based on whether you pay back the bank in full, have late payment fees or missed payments, and if you are making the minimum payment on a credit card,” she said.
If you want to build a credit profile, here are some basic tips to follow from Musa:
• Take a credit card but pay it in full.
• Pay off your e&, du and utility bills on time.
• Make sure you do not go over 70 per cent of your credit limit on your credit cards. This is how you build not just a credit history but a ‘good’ credit history.
“If you want to build a ‘good’ history you should be paying off all your debt on time and your credit card in full every single month. If you want to build credit history by taking a credit card and missing the payments, then you will be building a bad credit history, which is even worse,” she explained.
Five types of loan options for people without a credit history
Jay Adrian Tolentino, a UAE-based financial coach, explained the different types of no-credit-check loan options in the UAE and how they work:
1. Secured loans: These loans require collateral, such as a car or savings account. Because the lender has security, they are more likely to approve the loan even if you don't have a credit history.
2. Peer-to-peer (P2P) lending: P2P lending platforms match borrowers with individual lenders. They may have more flexible requirements compared to traditional banks. But, make sure the platform is authorised and overseen by the appropriate authorities in the UAE. Check reviews, evaluate fees and interest rates, and look into the platform’s history before making a decision.
3. Personal loans: Some banks offer personal loans based on specific criteria such as:
• Salary bracket: Higher salary brackets may find it easier to get approved. For high salaries, for example Dh25,000 and above, some banks may approve loans if an employment letter confirms the employee's status.
• Length of service: Being employed for at least six months, especially if past the probation period, can improve your chances of getting a loan.
• Employer's status: If the employer is listed with the bank, it may be easier to get approval due to the perceived stability and reliability of the employer.
4. Payday loans: While these can be tempting for quick cash, they often come with high interest rates and fees, leading to a cycle of debt. Read the fine print and be sure to pay them on time.
5. Buy Now Pay Later (BNPL): This option allows consumers to make purchases and pay them off in instalments. While it does not build a credit score, it can be a convenient way to manage cash flow for short-term needs.
Caution from experts: Better to avoid loans if you do not have a credit history
While no-credit-check loans might seem like an ideal solution if you need quick cash, especially for new expatriates or those who are financially inexperienced, they often come with high interest rates and require collateral.
“I generally advise against borrowing money, as it can create a sense of dependency on the lender. Instead, I recommend exploring alternative ways to generate income when you need extra funds,” Tolentino said.
He advised taking on side hustles, working additional hours, selling items you don't need, and reducing non-essential expenses. These strategies will help you gain financial independence in the long run without taking on debt.
I generally advise against borrowing money, as it can create a sense of dependency on the lender. Instead, I recommend exploring alternative ways to generate income when you need extra funds. Consider taking on side hustles, working additional hours, selling items you no longer need, and temporarily reducing non-essential expenses. These strategies can help you meet your financial needs without taking on debt.
“I'm not a fan of debt unless it’s used for productive purposes like business expansion or buying a rental property. Avoid any consumer debt at all costs. This is why having an emergency fund and insurance is important. It helps you manage unexpected expenses without falling into debt,” he added.
Alternatives to loans
However, if borrowing becomes necessary after exhausting all other options, he advised people to also consider the following options:
• Borrowing from friends or family: This can be a viable option if done responsibly. It is crucial to establish clear terms and a repayment plan to avoid misunderstandings.
• Using a co-signer: A co-signer with a good credit history can help you get approved for a loan. If you are co-signing a loan for a friend, though, keep in mind that you are responsible for the loan if your friend defaults, so it is a significant commitment.
Achieving financial well-being in the UAE without credit
According to the experts, your credit score is not the only way to measure financial success. Your financial decisions and habits play a crucial role.
“In my personal experience, I have not owned a credit card or taken out loans, and I've found that my life has never been better. Despite this, my credit score is 669, which shows that you can maintain a decent score without extensive credit use,” Tolentino said.
He explained that there are many ways to achieve financial well-being without relying on credit.
“Focus on managing your finances wisely, saving diligently, and making informed financial decisions. Building good financial habits early on can lead to a stable and prosperous future, even without a traditional credit profile. Learn to spend intentionally, practise delayed gratification, and save up for things like a trip or a new gadget,” he said.
