How Do the New Loan Transfer Regulations in UAE Affect You?

  | Published: 17 December 2020 | Last Updated On: 12 January 2021

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The UAE Central Bank has lately announced changes to the rules that govern retail loans in the region, in a manner that could bring much-needed relief to the residing borrowers, specifically on the transfer of loans from one bank to another.

What are the New Regulations and How Do They Affect You?

According to the decision to change rules on retail banking and on banking loans and other services to the clients, banks and financial institutions are obligated to reduce interest rates on the transfer of loans, between banks by the customer. It can be personal loan in Dubai, a car loan, or any other kind of loan. This decision comes among an environment with rising interest rates as the US Federal Reserve hikes rates and thereby, making borrowing expensive.

Many customers prefer transferring their loans from one bank to another if the other bank is offering a lower interest rate. With the new regulations levied by the UAE Central Bank, the borrowers no longer have to stress about the extended repayment periods while they enjoy the benefits of lower interest rates. As per the new rules, borrowers can transfer their personal loan in Dubai from any bank located in the country in exchange for an early repayment commission which does not exceed 1 percent of the outstanding amount of the personal loan in Dubai, or AED 10,000, whichever amount is lesser.

The UAE Central Bank has also stated that lenders and financial institutions are expected to cut the interest rate for the loans which were granted before the new rules and regulations were introduced. This is to be applied without increasing the repayment period for the loan or issuing additional funds or loans to the borrower.

The banks and other financial institutions are to accept the request for a loan transfer if certain conditions are met by the borrower. These conditions include a commitment to the new rules and regulations pertaining to the repayment period, loan amount and also the monthly installments.

How Will These New Regulations Help You?

With the UAE Central Bank raising the repo rate by 25 basis points, there has been a rise in the interest rates in UAE. The new rates levied aim at making borrowing a friendly option for customers. Since the UAE has been mirroring the US Fed rates, the rising trend in benchmark rates has been a worry for the borrowers of the region for the past few years. Since the year 2015, the US Fed has announced eight interest rate hikes, which has significantly increased the cost of raising a personal loan in Dubai.

The decision of the banking watchdog to impose lower interest rates while keeping intact the repayment terms will give the borrowing population of the region a chance to make a switch during the term of repayment if a competitive bank is offering lower interest rates as compared to the present bank of financial institution. This is beneficial for those who have a longer tenure left to repay the loan as it helps in saving a lot in the long run.

In a Nutshell

The new rules and regulations could also lead to a rise in competitiveness in the market because the banks are expected to lower their interest charges in order to attract and convince customers of the rival banks or financial institutions to transfer their existing loans to them.

This is one of the most sweeping changes that make it easier for individuals to transfer their loans from one institution to another if a better rate is offered to them. Thereby, bringing relief to the borrowers.