Buyout loan: Interest rate, benefits, Best lenders, How to apply?

Buyout loan: Interest rate, benefits, Best lenders, How to apply?PolicybazaarAverage Rating / 5 ( reviews)
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Are you overwhelmed with the burden of too many debts? Are the high rates of interest going over budget? The solution to these problems is simple- Get a buyout loan.

What is a buyout loan?

When you opt for a loan buyout facility, the bank approves a personal loan that can be used to pay all of your previously existing loans for instance an existing personal loan or a credit card debt. This type of loan comes to your rescue to enable you to take care of any other debt that was over- burdening you due to a financial crunch. 

In this type of loan, the borrower has to pay a fixed monthly payment to the bank for a pre-defined period of time that is usually two years to five years in order to pay off your buyout loan. It is available for the following types of loans:

  • Medical loans
  • Home loans (for residential properties)
  • Repair of residential properties
  • Educational loans
  • Consumer goods loans 

Buyout loan UAE

Not only are Dubai and Abu Dhabi among the most expensive cities in the United Arab Emirates to live in but they are among the top 25 most expensive cities to live in the world. The increasing costs in these cities put an enormous burden on both the residents and expatriates living here. As a consequence, most people are forced to take a loan to fulfill their needs and desires while living in these cities. Banks and financial institutions are aware of this growing need and are doing their best to provide affordable loans to consumers in order to enable them to manage their financial requirements. 

This is where the buyout loan Dubai and the buyout loan in Abu Dhabi come into the picture. It is a facility offered by most banks and financial institutions in the UAE that gives consumers having pre- existing loans. Borrowers can settle their previous loans, thus opening up the potential for more funds. Getting this loan gives the borrower access to additional funds while at the same time reducing your multiple monthly installments into a single payment towards the buyout loan UAE. These loans are gradually combined and sold to an investor as security. 

These loans have been extremely popular in recent times due to the ever-increasing cost of living. It encompasses several different debts taken by the consumer under its aegis. However, most of the terms and conditions of loan agreements continue to be unaltered. It only provides the borrower with some space as well as the potential to get access to more funds. So, if you are an expatriate or a UAE citizen who has a credit card debt or loan, you can take control of your borrowings by consolidating your loans into a single loan by applying for a loan buyout in UAE. 

The buyout loan interest rates in UAE

The rate of interest for a loan buyout facility depends on a number of factors. The credit score of the borrower is one of the primary factors. The interest rate differs from one bank to another but they depend largely on the credit history of the borrower as it lets the lenders know your capacity to repay. These loans tend to have lower interest rates than that of one’s existing loans. Borrowers who have an excellent credit history as well as a low debt to income ratio get the benefit of low interest rates. Let us take an overview of the average interest rates applicable on this personal loan buyout in UAE: 

 

 

Credit Score

Average Interest Rate

Excellent

850 - 720

4 % - 7 %

Good 

719 -690

12 % - 18 %

Average

689 - 630

21 % and above


Top 10 private money lenders to apply for buyout loan

There are many banks in the UAE that offer buyout loans at competitive rates. Buyout loan NBAD, Buyout loan ADCB and the loan buyout Noor Bank are some of the notable ones among others. Here is a list of the top banks that offer buyout facility: 

 

Bank

Amount

Minimum Salary Requirement

Interest Rate

Tenure

Noor Bank

Up to AED 25 million

AED 10,000

1.5 %

-

FAB Buyout loan

Up to AED 5 million

AED 7,000

4.74 %

48 months

CBD

Up to AED 3 million

AED 8,000

5.50 %

48 months

Finance House Buyout Loan

Up to AED 1 million

-

12 %

48 months

RAK Bank Buyout Loan

Up to AED 1 million

AED 5,000

5.99 %

48 months

Citibank Buyout Loan

Up to AED 250,000

-

6.99 %

48 months

ADCB Buyout Loan

-

AED 5,000

6.99 %

-

NBAD Buyout Loan

Up to AED 20 million

-

3.25 %

25 years

ADIB Buyout Loan

Up to AED 3 million

-

3.99 %

-

Emirates NBD Buyout Loan

Up to AED 1 million

AED 10,000

2.88 %

48 months

 

Which Lender is the right one for buyout loans?

Thinking about availing of the debt consolidation facility through buyout loans? There are many lenders that offer multiple benefits, choosing the right one amongst the many can be quite confusing. Borrowers should carefully evaluate their needs and ability to repay before they decide on a lender. The primary factors one should look into before taking a buyout facility should be:

  1. The loan repayment period
  2. The interest rate charged and how much less it is from the rate of interest on your existing loans
  3. The minimum salary required by each lender

What are the benefits of a loan buyout in UAE?

Getting a buyout loan meaning is that you will be eligible to avail several of its benefits. These benefits include:

  1. Access to greater funds
  2. Consolidation of loans (if applicable)
  3. Flexible repayment arrangement
  4. More competitive interest rates
  5. Reduced monthly installments 

How does a buyout loan UAE work?

There are three distinct parties involved in buyout loan meaning that they are investors, consumers and financial institutions.

Investors

Every time a bank or a financial institution offers this facility to a consumer, the loans are bundled together and offered to an investor instead. For the investor, this is  a debt instrument with prospective higher returns. These debt instruments are offered to the investors at a discounted price as opposed to the amount that is owed by the borrower while buying out. This is why investing in this category of loan is fruitful.

Financial institutions

There are two types of institutions that play a role in a loan buyout. The first is the institution that sanctions the original loan and the second is the institution that offers to buyout the loan.

The sanctioning institution of the original loan benefits from this arrangement as it does not have to wait for the entirety of the agreed loan tenure in order to recover its funds. On the other hand, the institution that offers the buyout option provides the instrument to prospective investors at a much less price. This price is arrived at by adding interest that was due at the time of the buyout to the outstanding principal amount. A small amount for covering the costs is also added to this. The loan buyout meaning the buyout facility allows the financial institutions to utilize the funds in approving more loans, thus creating income in the process. 

What are the eligibility criteria for a loan buyout in UAE?

Most banks have specific requirements that have to be met for a borrower to be eligible to avail of such loans. Here are the eligibility criteria for the loan:

  1. The pre-existing loan should not be more than six months old
  2. Approximately 30 percent of the loan’s installments should be paid off
  3. There should not be any record of missed or delayed payments

Required Documents to apply for a loan buyout facility:

Just like the eligibility criteria, each bank has its own documentation requirements for processing the applicant’s loan application. Other than the application form, borrowers need the following documents:

  1. The applicant’s bank statements for a minimum period of six months
  2. The applicant’s salary certificate
  3. For UAE residents, the Emirates ID and its copy
  4. For Expatriates, the passport and Visa copies
  5. The applicant’s salary continuation certificate
  6. Loan purpose along with supportive documents 

Factors most banks consider approving a buyout loan

Other than the required documents and eligibility criteria, there are some other factors considered by the banks before approval:

  1. The borrower’s credit report is considered and only those who have a good credit score are approved for the loan
  2. The debt to burden ratio or DBR has to be above 50 percent
  3. Some banks only approve applicants who are working in the listed companies, but there are some exceptions
  4. Banks also pay attention to the borrower’s salary. Most of the banks have a minimum salary requirement of AED 5000 but there are some who require more

A step by step guide to applying for a buyout loan Dubai:

Let us take a closer look at the several steps involved in availing such loans:

Step 1. The borrower has to furnish all the valid liability documents of the debts meant to be consolidated to the bank.

Step 2. The bank will evaluate the loan application of the borrower. The bank will then provide a condition approval for the loan.

Step 3. The bank will then issue a bankers’ cheque that covers the full amount of the total outstanding balance amount of each of the loans to be consolidated.

Step 4. Ultimately, the borrower will be left with just a single serviceable loan according to the terms and conditions given in the loan agreement. 

These buyout loans will not work however if the borrower has too much debt upon their account or if the borrower’s credit score is bad and they have not fixed their underlying financial issues. 

How does the loan buyout calculator work?

The EMI calculator calculates the EMI for this loan in simple steps. One can easily get an estimate of the interest one has to pay as well as the outstanding principal to be repaid with its help. 

The loan buyout calculator is a handy instrument that can help with the monthly payable amount calculation. It uses the following mathematical procedure:

EMI = [ P * R * (1 + R) ^ N ] / [(1 + R) ^ N - 1 ]

Where, P, N and R are the variables. This means that the value of the EMI will vary every time these three variables are changed.

“P” stands for the principal amount which is the amount originally lent to the borrower by the bank or financial institution. This amount is in accordance with the borrower’s needs. The higher is the amount of loan, the higher will be the amount of EMI one is expected to pay for it.

“R” is the rate of interest. This implies the rate at which an interest is charged on the principal amount of loan. The interest rate tends to vary depending upon the type of loan borrowed or even depending upon the lender or bank from which the borrower has availed the loan. This rate of interest has a direct impact on the EMI and thus, it is important to compare the interest rates between different banks before deciding on the one you would like to borrow from.

“N” denotes the period for which the loan has been borrowed and is generally in years. This period is also known as the tenure. The loan tenure stands for the total number of years given by the bank to repay the loan amount. As one makes repayments in monthly installments, the tenure is calculated in months which means that a tenure of 3 years is equivalent to 36 months.

Let us now take an example to understand this better:

For instance a borrower has taken a loan of AED 100,000 at an interest rate of 10 percent for a period of 2 years.

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

Convert 2 years into months, so, N = 24

EMI = [ 100,00 * 0.00833 * (1 + 0.00833) ^ 24] / (1 + 0.00833) ^ 24 - 1]

EMI= AED 4,615

Additional steps towards a debt- free life:

If you are pressed for money and are thinking of borrowing more money to pay off your debts, then a loan buyout facility might be ideal for you. However, to avoid incurring more debt on your head, it is best to plan ahead. Make a proper plan of action as well as a monthly budget. At the same time, it is best to develop a habit of saving in order to create a safe and stable financial future for yourself as well as your family and continue to live a debt free life.

If you have no immediate need for cash, you should certainly work towards building your credit score. This has many advantages, primary among these is being able to get approved for future loan opportunities. This also helps you in getting lower rates of interest as well as much better terms for getting a loan in the future.

Debt consolidation and Buyout loan:

Debt consolidation is a smart financial step that can help borrowers become debt-free as quickly as possible. A buyout loan UAE is also known as a debt consolidation loan that allows you to borrow from a financial institution or a bank in order to pay off any current liabilities that might be overwhelming you. This implies that all of your pre-existing loans, that includes your personal loans as well as any outstanding balance against your credit cards, into a single loan that has more flexible terms and conditions. This new, consolidated loan comes with lower rates of interests, a more flexible repayment schedule and tenure as well as better benefits. Generally, a debt consolidation loan helps a borrower repay their loans in around 48 months.

If there are multiple credit cards, salary transfer loans, and/ or non-salary transfer loans availed by the borrower, it becomes cumbersome to keep a track of the different payment dates as well as to keep a note of whether or not there is sufficient balance in one’s account before the pay off date designated for each card and loan. Consolidating all of these loans into one loan can make things extremely easy to manage, giving you greater peace of mind when it comes to your finances. On top of that, you will be able to incur lower interest rates by opting for debt consolidation loans from a reputable financial institution.

Difference between a Buyout and Balance Transfer Loan

Those borrowers who have a good credit report, getting a balance transfer credit card might be a good alternative to getting a buyout loan Dubai or any other part of the UAE. These cards come with an introductory rate of 0 % interest which generally tends to increase once the promotional period is over, that is a maximum of 24 months.

The maximum amount of credit card debt that can be transferred is equal to 90 percent of your card’s limit. After the introductory period is over, the rate applicable on a balance transfer card is typically higher than that applicable on a personal loan in the United Arab Emirates. Apart from paying off the balance before the interest rate increases, it is best to avoid making any additional charges.

A personal loan buyout in UAE has a few benefits over the balance transfer cards. They come with a fixed payment schedule ensuring that you pay off your debts within a fixed time period. The borrowing limits are slightly higher with some lenders willing to offer AED 200,000 or above as loans. Additionally, a personal loan will help improve your credit score if your credit card balance shrinks in relation to your credit limit. Your credit score is susceptible to suffer in case you end up using all of the available credit on your cards.

Also, a personal loan balance is marked as an installment debt, which gets treated as a separate entry in the formula calculating your credit score as opposed to a revolving debt like credit cards.

Can I apply for a buyout loan if I already have too many loan and credit card EMIs due?

The standard of living in the UAE might be quite costly. AS a result, people living here have tremendous pressure to fulfill their basic needs as well as their desires and goals. All of this can put one’s finances under extreme toll, forcing one to overstretch their limits. Some of these pressures might even be necessary, for instance, your child’s education, buying a home or some medical emergency. Another contributing factor to this increased pressure are the various incentives offered by marketers to run ahead in the competition and gain more customers. People like us get drawn to these offers and end up buying these products, even if it means going over-budget.

It is hard to overlook the onslaught of such offers as they are so attractive. After all, who can ignore a “buy now, pay later” offer? It becomes difficult to stay firm on your resolve to spend less when there are huge discounts, zero interest EMIs cash back and many other similar offers by the banks and credit card providers. Before you know it, you have gone over budget or are unable to meet your cash requirements alongside your loan EMIs and soon you find yourself sliding towards a debt trap. 

The same financial nexus that overburdens you with loans also provides you the option to get out from under it. You can opt for debt consolidation, also called a buyout loan meaning that you can enjoy a lesser rate of interest by combining all your loans and credit card debts into one loan, offering you much-needed peace of mind. Borrowing to repay an existing debt might seem tricky but it is indeed useful if the new loan is offered at a lower rate of interest.

Buyout loan with a bad credit score

We think that it is already pretty clear that having a bad credit score has its repercussions. The primary among these negative consequences is the fact that you will find it hard to get approved for a loan, even a personal loan buyout in UAE. But more importantly, if you do get approved, you have to be prepared for paying higher interest rates. In most cases, the monthly installments will be approximately the same, if not less than what you paid before debt consolidation.

Lenders are likely to see you as a risk due to a bad credit score. However, if you pay your installments regularly on time, you might be seen as responsible enough to make the payments on your buyout. This might help with getting affordable interest rates as well as in getting approved by a bank or financial institution for a buyout. 

Frequently Asked Questions

Q1. Are bank statements required for getting a buyout loan approved?

Ans. Yes, one requires bank statements up to a minimum period of six months to avail of these loans.

Q2. Is a processing fee applicable to a loan buyout facility?

Ans. Yes, these loans come with added processing fees.

Q3. Can a medical and education loan be consolidated?

Ans. Yes, a medical and education loan can be consolidated depending on your bank.

Q4. How much should a borrower’s debt burden ratio be?

Ans. A borrower’s debt burden ratio (DBR) should not exceed 50 percent.

Q5. How long can the repayment period be?

Ans. The repayment period can extend up to a period of 48 months in most cases.

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