How to ensure the best chance of personal loan approval.
Through moneyguide.ae everyday we see many applicants get rejected when applying for personal loans. UAE banks and other lenders are often reluctant to divulge the exact reasons for rejection but there are some common reasons why providers are saying no.
Who is this guide for?
This guide is for anyone who has applied for a personal loan and been rejected or anyone who is thinking of applying for a personal loan and wants to maximise their chances of approval.
Acting on the contents of this guide does not guarantee you will be granted a personal loan. The purpose of this guide is solely to help you understand what you can do in order to give yourself the best chance of gaining approval when applying for a personal loan
Why was my personal loan application rejected?
Firstly let’s look at why a personal loan application may be rejected.
Your salary is too low.
This is for protection of both you and the lender. No bank or financial provider will approve your application if it works out that you are unable to keep up with monthly repayments. Most loans in the UAE require that you have a minimum monthly salary of AED 5000. However one of the lowest salary available loans within the Emirates is the Dubai Islamic Bank Al Salami Expat loan, which requires a minimum salary of AED 3000.
Missing or incorrect personal details.
This may not seem like a big deal but believe us it is a very common error. Make sure the details you enter for the loan are all correct and as accurate as possible. Banks will verify the details you put in your application and if they find inconsistencies they will reject you. If you apply online you will get a call from the lender to confirm who you are and ask for more details. Always be truthful with the information you provide or your loan will end up being rejected.
Existing debt and your debt to burden ratio (DTB)
The UAE Central Bank has made it very clear that any existing monthly debt payments may not exceed more than 50% of your monthly salary. This is known as your debt to burden ratio (DTB).
Your loan application will be rejected if your DTB ratio goes above the threshold of 50%.
Banks also prefer that you do not have a number of outstanding debts with other providers as this makes you a higher risk to them as you have multiple lenders to repay.
Length of service and your employer
It is standard practice for most banks to ask for proof of employment history plus proof of your employer. Banks are concerned about the stability of your job. A requirement of many lenders is that your employer is on their companies approved list, you will also need to be out of your probation period. If your employer is not known to the bank and you are still on probation there is a high chance your loan will be rejected.
Are you happy to transfer your salary?
Only a few banks in the UAE will issue a loan without requesting that you transfer your salary. Salary transfer allows the lender to automatically deduct your monthly repayments direct from your bank account once it is credited. This also provides extra security for the lender if you become unemployed as the bank may act to freeze your end of service benefits.
If you have no relationship with the bank and are not prepared to transfer your salary it is unlikely you will be granted a loan.
The majority of UAE banks request that you must be over 21 years of age to apply for a personal loan. Similarly you must be under 65 at the point of your loan reaching maturity. If you are older or younger than the basic age limits mentioned your loan application will be rejected.
No Credit History.
If you have been in the UAE for less than 2 years it is unlikely you have any credit history. The Al Eithad Credit Bureau (AECB) are used by most lenders when possible to give a background on your credit history. If you have got a few negative listings or no credit history on your file there is a high chance your loan will be rejected. As credit history is still very new in the UAE it is not yet a critical factor why the lender rejects your loan but it can count against you.
What can you do to avoid personal loan rejection
Now you understand why your personal loan was not approved what can you do about it? Let’s take a look at how you can turn things around.
Get a copy of your credit report
As most lenders use the AECB credit report as a point of reference to asses loan applicants you should know what your credit report says about you.
You can easily find out everything about your UAE credit by applying for your full credit report with AECB, to learn more on the advantages of knowing your credit score read our article on knowing-your-uae-credit-score
Find out what the minimum requirements are
Every bank has their own criteria that applicants must meet for acceptance of a personal loan. Find out all the requirement details before applying for your loan. It will depend on the amount you choose to borrow but make sure you can provide all the documents needed, hold the valid permits to borrow and meet the minimum salary to be accepted. You may even work out what your monthly repayments will be using our personal loan calculator
Declare your intention for the loan.
Most personal loans allow you to spend the funds as you wish however a variety of loans will restrict you. Check with the bank to understand if any restrictions apply to your loan. If you want to borrow finance for a home, car or gold their are specific loans for this, be clear on what you use the funds for and state this truthfully on your application.
Appling online, provide all the details you can
When applying online make sure you put in as many details as you can to help the bank contact you. If the option is there to put a landline, take it. Most banks will try to contact you once then give up. By providing various options of how the bank can contact you it gives a higher chance that a bank representative will call. It seems odd as the bank is after your business but as most online applications result in a call back give them every chance to reach you.
Check your employer’s bank.
By applying to the bank with which your employer works it gives you an increased chance with your application. This offers the bank an extra level of security as a relationship is already in place. If you do not know which bank is affiliated with your employer ask your finance or HR team for guidance.
Whenever possible clear any existing debts before applying for a personal loan.
The simple truth is if a bank does not believe you can keep up with repayments they will not lend you any money. This is often the case when you have multiple loans or credit cards. It is very important to show a history of clearing debt or that you have consolidated debt into one place before applying for your new loan. Clearing existing debt also reduces your DTB ratio which as mentioned before is a big factor considered by banks when deciding on loan approval.
Still being rejected? What to do next….
Consider a credit card
Firstly work out exactly how much do you need to borrow, you may find you have more success being approved for a credit card and this covers the amount you need. The interest charged on a credit card will be generally higher than a loan so work out your timescales and costs involved before taking this route. To find out more on this option read our article Is a credit card cheaper than a personal loan
Look at the Independent Finance Houses.
Rates may be higher but a few independent finance houses will generally look at applicants who have been rejected by the larger commercial banks. Get an idea of all personal loans and providers in the UAE to learn if there is a provider that lend the funds you need.
Ask your employer
It is always worth asking your employer if they would be prepared to loan you the amount you require. Due to the property rental market asking for rent to be paid annually in advance it is very common that UAE employers do this for their employees. You generally do not have to worry about interest or repayments either as usually the loan is deducted directly from your monthly salary.
There is always an answer
It is never pleasant being told no, especially if that comes from a bank declining your loan application
The main thing to remember is that the decision is always addressable and if you take a step back there is quite often a solution. If you are still finding it a challenge to secure a loan read our article Can you get a personal loan with a monthly salary of AED 5000 or less for further advice.
Evaluating your personal finances is a good way to understand how best to move forward. No matter what the circumstance never try to borrow more than you are able to comfortably repay each month or you may end up in costly legal disputes.
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