UAE loan transfers: Will switching banks actually save you money?

Dubai: A lower interest rate or several months without repayments can make switching banks look attractive. For UAE borrowers considering a loan transfer, the saving depends on what they will pay over the remaining life of the debt, including the cost of leaving one lender and joining another.

That calculation has become more relevant following reports of possible restrictions on loan transfers from January 2027. The proposed changes could require borrowers to stay with their original lender for a minimum period or pay a specified number of instalments before moving, although the terms and start date remain subject to official confirmation.

Ahmed Kamran, Associate at BSA LAW, said borrowers should assess offers against the framework currently in force. Switching simply to get ahead of a possible future restriction could leave them paying more.

“Compare total cost, not just the monthly instalment. Consider transferring only if the new facility works on the figures available today, and keep watch for the CBUAE’s final rules,” he said.

Borrowers do not have to rely solely on a salesperson’s explanation of potential savings. The Central Bank of the UAE’s Consumer Protection Standards already require lenders offering refinancing or consolidation to provide a written comparison of interest or profit payable under the existing facilities and the proposed arrangement.

Clause 7.1.1.6 requires a comparison of “the total interest/profit charged over the tenor of the loans/financing payable if they continue with the existing facilities versus the total interest/profit payable based on the consolidated facility being offered”.

The standards also state: “Any assumptions used in calculations must be reasonable, justifiable and clearly stated and communicated.” A copy of the comparison must be provided for the consumer to review during the applicable cooling-off period.

Kamran said borrowers should examine that document alongside the fees and repayment schedule. The interest or profit comparison is a starting point; setup charges and the cost of settling the original loan also affect whether a transfer produces a saving.

For personal-loan transfers covered by Article 20(b) of the Central Bank’s regulations, the early payment fee cannot exceed 1 per cent of the outstanding balance or Dh10,000, whichever is lower. The receiving lender must also comply with the applicable requirements on the loan amount, repayment period and monthly deduction.

The new facility may carry its own costs. Kamran said borrowers should obtain written details of processing fees, insurance and other charges before accepting an offer, rather than treating the advertised rate as the final measure of value.

“A promotional rate rarely tells the full story,” he said. “Processing fees, insurance and other charges on the new facility can wipe out much of the headline saving.”

The repayment period also needs scrutiny. Kamran said refinancing can leave a borrower worse off if the combination of the rate, fees and loan term costs more over the life of the debt, even when the monthly instalment appears more manageable.

A repayment holiday may ease immediate pressure on a household budget, but borrowers need to establish what happens to interest or profit during the break. They should also check the final repayment date and the amount payable once instalments begin.

“During a grace period, interest or profit can still accrue and be added to the balance. That often means a higher total cost and a longer true life for the debt, even if the first months look light,” Kamran said.

Household affordability was also a concern raised by Sandeep Jadwani, Head of Investment Advisory at H Capital Ltd., in June this year, after interest rates were kept unchanged for a fourth consecutive time. Since then, rates were hiked in September, before keeping it unchanged in October.

He said banks were paying closer attention to income stability, income growth and debt-servicing ratios as expenses increased. “Since schooling, healthcare etc are increasing this will impact the debt-service-ratio (DSR),” he said. The ratio measures how much of a borrower’s income goes towards repaying debt.

Kamran said the possibility of new restrictions should not become the main reason for refinancing. Borrowers also need to consider whether a new arrangement gives them enough flexibility if their employment or financial circumstances change.

“Treat any move as a decision on today’s numbers, while staying mindful of what may later be confirmed,” he said. Any minimum stay, instalment requirement, exemption or wider product coverage would depend on the final regulatory text.

If a holding period is introduced, Kamran said borrowers would need to choose their lender with a longer horizon in mind. He expects clearer transfer rules could shift some competition towards the initial offer, service and customer retention, although the effect would depend on the requirements adopted.

The existing Consumer Protection Standards require lenders, in accordance with responsible-financing requirements, to allow consumers to transfer loans “without undue delay”. They also permit an early settlement fee as prescribed by the Central Bank.

Kamran said borrowers facing delays or unfair treatment should first complain to their bank. Under Sanadak’s published eligibility criteria, consumers may escalate an eligible complaint after 15 calendar days if they have received no written response or remain dissatisfied with the response.

For anyone weighing a transfer, the documents to compare are the existing repayment schedule, the proposed schedule, the written interest or profit comparison and the full list of charges. Together, those figures show whether the offer reduces the cost of the debt or mainly postpones the payments.