With growing inflation, meeting one’s day-to-day needs is a real struggle. And emerging countries like the UAE, where the high cost of living can take its toll on peoples’ savings, personal loan helps to meet the financial expectations in a great way. Personal Loans provide a solution to financial worries, where people enable themselves for procuring a generous figure from the respective banks in order to take care of their priorities. Having said that are you considering the tenure of a personal loan? Do you think long-term personal loan is a good choice?
Well, before deeming into the decision, it is mandatory to consider the various terms and conditions associated with different banks, offering Best personal loan in UAE and the jargons that define personal loan. Let’s dig into a bit detail:
Personal Loan Jargons
Here you go-
1. Personal Loan Rate of Interest
When it comes to the rate of interest of personal loan in the UAE, there are two types of ROIs-
- Flat Rate of Interest
- Reducing Rate of Interest
Flat Interest: In case of flat interest rate, the sum payable and loan interest is calculated at the beginning and remains the same throughout the loan tenure or till the time the borrower repays the amount. Loan Tenure is the overall period for which the PL is borrowed.
Reducing Rate of Interest: Whereas in this case, the principal amount gets reduced after every instalment is paid. Unlike the flat rate of interest, reducing interest rate is charged only on the outstanding principal amount of the PL.
2. Annual Percentage Rate
Annual Percentage Rate (APR) refers to the annual rate charged for borrowing the amount.
3. Application Fee
A fee required to be paid by the borrower at the time of loan application.
4. Loan Agreement
A deal between the borrower and the lender containing the terms and conditions of the PL.
5. Total Amount Repayable
The borrowed capital amount and interest charged by the lender.
Why is Long-term Personal Loan in UAE a Better Choice?
For the past few years, the consistent emergence of various banks and financial lenders has served as a major factor for the existing competitive personal loan interest rates. In this regard, loan seekers prefer going for loans with long tenure due to the following reasons:
- Unsecured loans: Usually, short-term personal loans call for security submission in the form of collateral. This is not the case with the long term loans. Lenders do not ask you to submit any collateral. Since Personal Loan is a type of unsecured loan which does not require for the borrower to serve any security to assure their repayment to the banks.
- Reducing Interest rate: Any person while seeking for a loan should pay attention to the types of personal loan interest rates in the UAE. The major benefit on the long term loans is the reducing interest rate on the outstanding loan amount instead of the whole value, unlike the flat interest rate. So, the interest is payable only on the remaining borrowed amount along with the whole principal value. As per the recent data, for the tenure of 1,2 and 3 years, Reducing Rate of interest varies from 16.22 %, 16.25 %, 16.43 % respectively.
- Affordable EMI Amounts: Long term loan aids individuals to economically manage their instalments by bringing down the value. Longer tenure minimises the Equated Monthly Instalments (EMI) amounts, which further smooth up the future process of repayment. So, one does not need to make alterations in their monthly budget schedules in order to pay off the loan.
The loan holder may also consider calculating one’s EMI amount using EMI calculator, before the procurement of such loans. EMI calculator lets you calculate the amount to be paid at the end of every month.
- Adds up to Your Credit Score and Financial Discipline: Long-term loans not only provide sufficient time to pay off your debt but also influence your credit score in a great manner. The credit score of any individual is based upon his/her credit history over time. It’s also very necessary to pay attention to your credit history, which indicates your financial past record. It determines one’s diligence and financial discipline over a period of time. 30% percent of your credit score assesses your credit history and around 25% judges the type and duration of the credit you have borrowed. Also, the higher the credit score, higher are the chances of being granted a loan.
The Other Side of the Coin!
Here you have the benefits of opting for long-term personal loan. However, you should also contemplate the risks related to personal loans before settling for it.
- End up Paying High Interests: During longer tenures, interest is calculated in a compounded manner. So the person ends up paying more interest value. The interest rate keeps on accumulating over a longer period. This adds up to the total cost of the loan bearer. So, eventually the borrower ends up paying more in case of long-term loan, as compared to a short term loan .
- Longer Debt Duration: As longer the time frame of the loan, the borrower feels more burdened and will have to act quite more financially disciplined. Although such unsecured loans do not entertain the requirement of collateral submission. They do charge you specific penalties or fees if you choose to close the loan account before the loan period . Lenders might also take legal action against their clients by enforcing ‘GARNISHMENT OF WAGES’. Garnishment of wages is nothing but the seizing of debtor’s salary amount until the debt is duly repaid.
- Reduces the Chances for New Loans: With an on-going loan, the chances for procuring a new loan type automatically diminishes. With an existing loan, your credit status won’t let you adjust for a new debt when you already have a long-tenured loan. Basically, it reduces the repayment ability of the borrower.
The Bottom Line!
Taking a long term personal loan in UAE is a decision which shall be considered wisely before actually opting for it.
It is mandatory for every loan seeker to be aware of their credit records and eligibility. This should be in respect to whether or not would they be able to hold onto the particular debt they have opted for.
One should be able to evaluate their credibility. One should opt for the same, only after calculating and comparing certain factors such as tenure of loan payment, rate of interest offered and additional charges etc. Although personal loan helps you meet the financial needs, in any case, it will be a necessary burden that you would want to get rid of as soon as possible. So, apply for a loan only after analysing your requirements!