The term “loan” refers to a kind of credit method in a manner where a sum of money is lent to a party in exchange for a value or a principal amount’s future repayment. In most cases, the lender also adds interest or finance charges, or both to the principal amount. These charges need to be borne by the borrower on top of the principal balance. There are different types of loans in the market – they can be offered as a fixed, one-time amount, or as open-ended credit lines up to a fixed limit. There are numerous different forms of loans that include commercial, unsecured, secured, and personal loan in UAE.
Before moving onto the types of loans in Dubai, it is important to actually understand what loans are. A loan is a type of debt that is incurred by an entity or an individual. The lender of the amount – generally a financial institution, bank, or government – advances an amount to the borrower. In return for this amount, the borrower agrees to fixed terms and conditions including interest, any finance charges, the repayment date, among other things. In some loan cases, the lender might also require the borrower to provide collateral or security to secure this loan and ensure the repayment of the amount.
There can be many reasons as to why one has to advance a loan including financing major large purchases, renovating a home, investing, consolidating existing debt, and financing business ventures.
Types of Loans in Dubai, UAE
The following are some common types of loans that are widely available in the lending market in Dubai and the UAE.
Personal Loan in UAE
A personal loan in UAE is a kind of an unsecured loan in which the borrower is not required to provide any sort of collateral or guarantor to the lender in order to avail the loan (unlike home or mortgage loans where assets need to provided to obtain the loan). A personal loan in UAE is suitable for salaried individuals and is not suitable for businesses or enterprises. A personal loan can be obtained in a very short period of time with simple documentation.
A credit card is a form of a credit issued by a bank that allows the cardholders to make purchases on the card. This plastic form of money has its own pros and cons. If the bills accumulated are paid on time and in full, then the cardholder can avoid racking up debt, however, if otherwise, then the cardholder might get stuck in large debt and interest charges.
Home Loan or Mortgage Loan
This kind of loan is suitable for those individuals that are in business and require a business loan in terms of a real estate business. In order to avail of a home or mortgage loan, the loan seeker needs to submit some assets as a guarantee against availing the loan. The process of obtaining these loans is tricky and quite time consuming as well.
In order to avail of a business loan, the loan seeker must provide a minimum of 6 months’ statement of his or her business. There are numerous loan providers in the UAE that offer such loans to startups and small to medium-sized enterprises at attractive interest rates to support the growth of small businesses in the UAE.
Car or Auto Loan
If you have plans to obtain a car loan in UAE, you might be required to pay a fixed amount as a down payment in the case of some banks. However, the criteria for obtaining an auto loan vary from one provider to another. There are also used car loans available in the market that is also a good option.
The Bottom Line
In general, there are 2 types of loans: open-ended loans and closed-ended loans. Open-ended loans mean that once you have repaid the loan, you can continue to use again, for example, credit cards. Whereas, close-ended loans, once repaid cannot be used again, for example, personal loan in UAE.