Can You Get A Loan In The Uae While Already Paying Multiple Credit Cards? What Borrowers Should Know

By Author: IDMS
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Just having multiple credit cards will not prevent you from getting a personal loan in the UAE. But it makes the process more complicated.

When assessing your loan application, banks look at your salary and your financial obligations. Banks will look to see if you can realistically afford to make the monthly loan repayment. They will assess if a loan will put you under financial strain.

This is where the majority of borrowers get it wrong. Just because you earn a high salary does not mean you can afford to take on more debt. With a high salary, you may be able to afford expensive cars and pay off multiple credit cards and still have sufficient income to meet the repayments on a new loan.

The main consideration for banks is your overall financial situation. They will look to see if you can afford to make the additional loan repayment and still afford the essentials.

Ultimately, the situation is assessed on a case-by-case basis. A borrower with several credit cards could still afford to take on more debt if they are using their credit cards responsibly.

Debt Burden Ratio (DBR)

One of the ...
... key assessments made by banks in the UAE is the Debt Burden Ratio (DBR).

This assessment looks to understand what level of your monthly income is used to service your debt. The UAE Central Bank has mandated that the total monthly repayment of all a borrower’s debt and credit facilities should not exceed 50% of the borrower’s gross monthly income.

This includes all a borrower’s debt and credit facilities.

This means that if an individual has a monthly income of AED 15,000 and has a total monthly commitment of AED 7,500 to debt and credit facilities, a bank may not give the individual a new loan because the individual has a remaining income of AED 7,500 after debt service.

The bank would look negatively at the new debt service obligation.

It is important to understand that while an individual is making the minimum payment due on a credit card, the individual is not paying off the credit card balance and the debt service obligation.

The individual may continue to be burdened by the debt service obligation long after the credit card was issued and used to make purchases.

The individual may also be charged interest and other fees.

A small monthly payment does not mean a small debt.

Prior to requesting additional debt, an individual should assess all credit card and other debt service obligations to get a true assessment of the individual’s debt service burden.

Credit History and Loan Applications

Your credit history is important too. Your ability to manage credit is important to banks. Making timely payments shows responsibility. Bank consideration of your credit application may be refused if payment history shows delinquencies. Your credit report shows your existing credit and other facilities.

Knowing what banks see in your credit report means you may have the opportunity to delete or correct any adverse information.

What happens if you have a lot of financial obligations?

Banks may evaluate the available cash flow and arrive at a conclusion that a further increase in financial obligations may put you under a lot of stress.

Rejecting an application may not be the conclusion arrived at. It may depend on the Bank, your employer, credit history, obligations and other variables.

Debt consolidation may be an option, and it may be prudent to combine all your obligations into one to reduce the hassle of managing multiple obligations.

Not all consolidations are financially beneficial. Terms need to be researched to determine if there is a real reduction in the obligation.

Banks need to evaluate your credit history to determine if you are eligible to be extended more credit. Having a lot of obligations may preclude you from being eligible.

What should you consider before applying for a loan?

Before applying for the loan, document your monthly income and list your financial obligations. Consider credit card payments, personal loans, and other debts.

Also, consider your credit card balances separately.

Are you able to comfortably make the new payments while also meeting your day-to-day financial obligations?

If the answer is no, then the new loan is not the solution.

Borrowing money is often done out of necessity, but sometimes it is used to reorganize debt or to cover chronic, irresponsible spending. There are many reasons for a person to put himself in financial obligation and to rely on credit cards. The person may be able to meet a new financial commitment because of his current, manageable obligations. However, the new obligation may put the person in a situation in which he cannot manage his financial obligations.

The person should not rely on the bank’s confidence in his financial ability to assess his true financial situation.

You need to be realistic about the debt you already have. The debt that gets comfortably incorporated in your budget is different from the debt that is a burden. The burdened debt may push you to rely again on credit cards.

Of course, sometimes, debt is necessary. However, it gets very complicated when you use debt to service another debt.

FAQs

Am I disqualified for a personal loan because I have many credit cards?
Having a lot of credit cards doesn’t automatically mean you won’t get a personal loan. The lender will look at your credit history and your income. They will also look to see if you will be able to repay the loan.

Will my credit card debt affect my loan application in UAE?
Yes. When a lender assesses your loan application, they look at your total debt.

Will paying only the minimum amount due on my credit card affect my loan application?
Yes. A credit card debt becomes a burden if a large amount is always owed.

Can I use a loan to pay off my credit card debt?
This may be possible. But you should look at the total cost to you before you do this.

What should I consider before I apply for a loan?
You should look at your credit history and your income. You should also look at your other expenses to see if you will be able to pay back the new loan.