How Can a Personal Loan Affect My Mortgage Application?

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When you apply for a mortgage, your existing debts like a car loan, personal loan, credit card bills, and many others can affect the amount that you can borrow. Most banks and financial institutions in the UAE first run a check on your finances to know if you are handling them well before they consider giving you a loan or mortgage.

In this post, we will take you through different personal loan aspects that affect your mortgage application in a good or bad manner. In addition, we will also help you learn what you can do to make your mortgage application better and more appealing.

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How Personal Loan Affects Mortgage Application?

An active personal loan can affect the mortgage application in both positive and negative ways. Here are a few points to help you understand how a mortgage application works if you already have a personal loan.

Positive Effects

Here are a few ways in which an active personal loan affects your mortgage application positively.

  • Credit History: Repaying your personal loan EMIs on time will reflect in your credit report and help you build a good credit history. Most financial institutions in the UAE look at your credit report before approving any loan or mortgage application.  
  • Financial Discipline: If you maintain a good track record for your loan by making timely payments and no EMI defaults, the lender will consider you as a financially disciplined borrower. Such behaviour shows your seriousness as a borrower and helps lenders believe that their money will be safe with you.
  • Scope of Negotiation: With a good repayment history, you stand in a better position to negotiate with the lenders in terms of the mortgage amount. In addition, if you have a good credit Score, you are eligible for extended repayment tenor and lower interest rates.

Negative Effects

Here are a few ways in which an active personal loan affects your mortgage application negatively.

  • Poor Credit Score: If you have multiple personal loans in process and you are unable to pay your personal loan EMIs regularly, your credit score will be affected in a negative way. It takes months to recover a bad credit history that jeopardises your mortgage application.
  • Higher Interest Rates: If you struggle to make your personal loan EMIs repayment, you might still get a mortgage application approved, but the lenders will charge you higher interest rates. 
  • Hard Queries: Applying for a mortgage multiple times can create various hard queries, and financial institutions in the UAE record these queries in your credit information report. Too many hard queries do not lie in your favour and can raise a red flag for the money lenders.

Also Read Difference Between Personal Loan and Student Loan in UAE

Tips to Enhance Your Mortgage Eligibility 

Here are a few effective tips to help you enhance your mortgage eligibility.

  • Pay off Your Bills on Time: On-time bill repayment shows mortgage providers that you are a responsible borrower effectively managing your finances. With such a reputation, they can trust your ability to repay and approve your mortgage application in no time. 
  • Reduce Your Loan Amount: If possible, you must make early payments and reduce your personal loan balance amount to free up your income for mortgage repayment. This can help you apply and get your mortgage approved successfully.
  • Improve Your Credit Report: If you find any mistakes in your credit report, make sure you fix them. The credit report should be up-to-date before you apply for a mortgage or a loan. 
  • Lower Debt-to-Income Ratio: Make sure you reduce your debts to lower down your debt-to-income ratio. This way, you can apply for a higher mortgage amount based on your financial needs. 
  • Cut Down Your Expenses: Cutting down on unnecessary expenses can help you improve your loan affordability. You can cut down your spending on things like entertainment, shopping, etc. 

The Bottom Line

In some cases, when you make your repayments on time and create a healthy credit report, an active personal loan does not affect your mortgage application at all. However, you must start managing your finances a year before you apply for a mortgage. Such financial planning helps you cut down unnecessary expenses and use your money in repaying your debts. 

If you want to explore mortgage options, you can always get in touch with our financial experts. They will help you enhance your credit report and put all the other financial parameters in place to get your mortgage application approved at once.

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