The refinancing of mortgages and the consolidation of credit card and personal loan debt is becoming a very important tool in the UAE for expatriates and nationals alike. With a huge increase in such cases seen over the last few months, this trend may continue as Al Etihad Credit Bureau begins issuing consumer credit reports. Debt consolidation refers to combining several loans into one single liability, usually a personal loan. Previously, banks in the UAE had no idea how many other outstanding loans a customer had. However, with such information now readily available, it becomes less risky for banks to lend for refinancing or debt consolidation, as they know exactly how the loan will be used.
More and more banks are now creating solutions for those in debt. Islamic banks such as Abu Dhabi Islamic Bank, Al Hilal Bank and Dubai Islamic Bank provide liability settlement products that allow borrowers to combine their debt so that they only have to worry about making one monthly payment. No matter whether you have a car loan, personal loan, credit card debt or an outstanding mortgage, there are financial institutions that have developed products that can help you manage your finances.
Credit Card Balance Transfer
Transferring a credit card balance is a very effective way to consolidate debt. Understanding the current interest rate on your credit card and what other banks are offering will help identify the lowest rate on the market. In addition, many banks provide offers such as 0% interest for the first three months, thus helping you repay your debt sooner. For more information, you can read our blog: “0% Balance Transfers: How to End Credit Card Debt.”
The UAE Central Bank recently capped the early home loan repayment fee at 1% of the outstanding loan amount. This has opened the door for homeowners to refinance their mortgages as banks were previously charging 4% in some cases, thus preventing borrowers from switching to a lower interest rate home loan. Banks are now capitalizing on this opportunity by offering balance transfer home loans at attractive rates. The bank views this as a way to charge the consumer less interest on the amount being lent as they already have collateral in case of a default.
If you do plan on consolidating your debt, spend the time comparing credit card and loan options to make sure you are making the most of this opportunity.