Debt consolidation in the UAE: options and trade-offs

Debt consolidation replaces several loans or card balances with one new facility, such as a loan from another bank or a card balance transfer. In the UAE the new loan must still fit the Central Bank’s limits: loan and card repayments within 50% of gross income, and a personal loan of no more than 20 times salary, repaid within 48 months. The lender must first compare total interest in writing.

Key takeaways

• Consolidation replaces several debts with one; it can lower the monthly payment, but a longer term can raise the total interest.
• Before consolidating or refinancing loans, the lender must give you a written comparison of the total interest under your current loans and under the new one.
• The new loan must stay within the 50% debt burden ratio, 20 times salary and 48 months.
• The fee your current lender can charge to move a loan to another bank is capped at 1% of the outstanding balance or AED 10,000, whichever is less, before VAT.
• Lenders may not lengthen a loan, or close it to open a bigger, longer one, just to get around the debt burden ratio.

What debt consolidation means in the UAE

Consolidating means one new facility pays off several old ones, leaving you with one repayment, one rate and one end date. There are three common routes:

A buyout loan from another bank

Any borrower may move a loan to another bank or finance company in the UAE, and the new lender may also settle card balances as part of the same loan. A guide to the buyout process is planned.

A credit card balance transfer

This route covers card debt only: another bank pays off your card and turns the balance into instalments on its own card, at a rate and fees it sets. See credit card balance transfers for the mechanics, and the credit card payoff calculator for the cost of staying on your current card.

Consolidating with your own bank

Your bank may offer a top-up of your personal loan to clear other debts, or a plan that turns card balances into instalments. A top-up has a condition of its own:

When a top-up can be granted

1 year

A top-up loan should not be granted unless the original loan has been repaid without default for at least one year.

How top-ups work is explained in personal loan top-ups.

The Central Bank limits that still apply

A consolidation loan is a new loan, so every lending limit applies to it. The first is the cap on all your loan and card repayments together:

Maximum debt burden ratio

50%

Monthly deductions for all loans and facilities from banks and finance companies together, including car loans, home loans, overdrafts and credit cards, must not exceed 50% of the borrower's gross salary and any regular income from a defined and specific source, at any time.

Credit cards are named in that rule, so cards you keep open still count. Ask each lender how much of an open card limit it treats as a monthly payment. A personal loan is also capped in size and length:

Maximum personal loan

20× salary

A personal loan must not exceed 20 times the borrower's monthly salary or total income.

Maximum personal loan term

48 months

The repayment period of a personal loan must not exceed 48 months.

Three more rules stop consolidation being used to get around these limits:

• The receiving lender applies them. A lender that takes over a loan from another lender must keep it within the limits on amount, repayment period and monthly deduction (Regulation 29/2011, Article 20).
• No stretching the term. Lenders must not lengthen a loan to lower your debt burden ratio and lend you more, or close a loan as paid only to open a bigger, longer one (Consumer Protection Standards, Article 7).
• No rescheduling beyond eligibility. Top-ups, deferrals and rescheduling may not go beyond your eligibility on salary multiple, term and repayment percentage, and there should be no “ever greening” of loans to disguise problem loans (Regulation 29/2011, Article 7).

Our guide to how much you can borrow works through these limits with examples.

What it costs to consolidate

Your current lenders may charge a fee to settle each old loan and small charges for letters and statements, and the new loan may carry a processing fee. The Central Bank caps the first two; its fee table has no line for the third.

Settling the old loans

Your current lender may charge a capped fee when another lender takes over your loan:

Fee for moving a loan to another lender

1% or AED 10,000

A borrower may move a loan or financing to another bank or finance company in the UAE on paying an early-payment fee of no more than 1% of the outstanding balance or AED 10,000, whichever is less.

The fee table’s consumer loan line “Early settlement from other bank loans” lists 1% with a maximum of AED 10,000, and car loans have their own row:

Early settlement fee cap, personal loans

1%, max AED 10,000

For consumer (personal) loans, the fee table caps early settlement from other bank loans, final settlement from other sources such as end-of-service benefits, and partial payment at 1% each, with a maximum of AED 10,000.

Early settlement fee cap, car loans

1% of outstanding

The early settlement fee on a car loan is capped at 1% of the outstanding amount.

The car loan row lists no AED ceiling, though 1% stays under AED 10,000 on any balance below AED 1,000,000. Every cap in the table is stated before VAT, which is added on top. Islamic lenders may charge an early settlement fee only for the actual costs the settlement causes them (Consumer Protection Standards, Article 11). More detail is in early settlement fees and settling a car loan early.

Letters and statements

You need a written figure for each debt, and any lender must give you a liability or no-liability letter on request:

Liability or no-liability letter

7 business days

A consumer can ask the lender at any time for written confirmation of whether any liabilities are owed; the lender must issue a letter of no liability, or, if something is still owed, a letter of liability with the details and amounts, within 7 complete business days of the request.

The fee table caps the charge for these documents:

Liability letter, credit cards

AED 50

A liability or no-liability letter for a credit card costs at most AED 50.

Redemption statement, consumer loans

AED 25

For consumer loans, the fee for other services such as a copy of the loan, a redemption statement or an audit confirmation is capped at AED 25.

Liability letter, personal accounts

AED 60

For personal accounts, a no-liability certificate and a liability letter issued to financial institutions, government departments or embassies are each capped at AED 60.

The consumer loan rows do not name a liability letter, so ask which line of its schedule of charges your lender applies to a personal loan letter.

Fees the rules do not cap

The fee table has no processing or arrangement fee line, so that fee is the lender’s own. A lender needs the Central Bank’s approval before introducing a new fee the table does not cap, and should make its current fees public. The new loan’s Key Facts Statement must show its possible fees, so look there for the processing fee and other charges.

The written comparison your lender must give you

Before offering a loan to consolidate or refinance your existing loans, a lender must show you in writing what each choice costs in total interest:

Written comparison before consolidating

Written comparison

Before refinancing or consolidating existing loans, the lender must give the consumer a written comparison of the total interest or profit payable over the tenor if they keep the existing loans versus the new one.

Its assumptions must be reasonable and clearly stated, and you get a copy to review during the cooling-off period after signing:

Cooling-off period

5 business days

Consumers have a cooling-off period of 5 complete business days after signing a contract for a credit, insurance or other CBUAE-regulated product, during which they can withdraw without undue cost.

Check that the comparison:

• lists every debt the new loan will clear, with the balance and months left on each;
• shows the settlement fees, the processing fee and any insurance beside the interest, since the rule names only interest or profit;
• uses reducing-balance figures on both sides (see flat and reducing rates);
• assumes the rate in your offer, including whether it can change.

The rule names loans and financing. For a card balance transfer, ask for the same comparison anyway.

A worked example

Merging two shorter loans into one longer loan shows the usual trade-off: a much lower payment and a much higher total.

Worked example

Two personal loans consolidated into one AED 60,000 loan over 48 months

All balances, rates and terms are illustrations, not offers. Every loan uses a reducing rate: instalment = balance × r ÷ (1 - (1 + r)^-months), where r is the yearly rate ÷ 12. Interest = instalment × months - balance, worked with the unrounded instalment.

1. Loan A: AED 40,000 left over 24 months at 8%. Instalment: 40,000 × 0.0066667 ÷ (1 - 1.0066667^-24) = AED 1,809.09. Interest still to pay: AED 3,418.20.
2. Loan B: AED 20,000 left over 12 months at 10%. Instalment: AED 1,758.32. Interest still to pay: AED 1,099.81.
3. Together: AED 1,809.09 + AED 1,758.32 = AED 3,567.41 a month, and AED 3,418.20 + AED 1,099.81 = AED 4,518.01 of interest.
4. New loan: AED 60,000 over 48 months at 9%. Instalment: AED 1,493.10. Interest: AED 11,668.92. Under the 20 times rule it needs a monthly salary of at least AED 60,000 ÷ 20 = AED 3,000.
5. Fees to move: 1% × AED 40,000 = AED 400 and 1% × AED 20,000 = AED 200, so AED 600 before VAT.
6. Result: AED 3,567.41 - AED 1,493.10 = AED 2,074.31 less a month, and AED 11,668.92 - AED 4,518.01 = AED 7,150.91 more interest.

	Keep both loans	Consolidate
Payment, months 1 to 12	AED 3,567.41	AED 1,493.10
Payment, months 13 to 24	AED 1,809.09	AED 1,493.10
Payment, months 25 to 48	AED 0	AED 1,493.10
Interest still to pay	AED 4,518.01	AED 11,668.92
Fees to move, before VAT	None	AED 600

The monthly payment falls by AED 2,074.31, but the interest rises by AED 7,150.91, plus AED 600 in fees, and the debt runs 24 months longer.

Loan B would have ended after 12 months and loan A after 24. The written comparison your lender gives you should show the same trade-off for your own debts.

Trade-offs to weigh

Consolidation helps when the rate falls or a smaller payment keeps you from falling behind; it can cost more when it stretches the term.

• A longer term can mean more interest. In the example, the payment falls by more than half while the interest more than doubles.
• Cleared cards still count while open. Card repayments sit inside the 50% cap, so ask how a lender counts an open limit with nothing owed on it, and see closing cards and clearance letters.
• Applying for credit is a score factor. The Etihad Credit Bureau (AECB) lists six factors behind your score: how much of your credit limits you use, recent use of loans and cards, recent applications for new credit, paying on time, late or overdue payments, and honoured and returned cheques. It gives no weights, so the page does not show how far one application moves a score.
• Your security cheques must come back once an old loan is paid off early:

Return of post-dated cheques

7 business days

When a loan or financing is paid off early, the institution must return the remaining post-dated cheques to the consumer within 7 complete business days of the payoff.

How to consolidate, step by step

1. List every debt. Buy your AECB credit report and note each loan and card: lender, balance, rate, instalment and months left (how to read your AECB credit report).
2. Get settlement figures. Ask each lender for a liability letter or a redemption statement, in writing.
3. Check your debt burden ratio with the new instalment and every card you will keep open.
4. Compare offers on their Key Facts Statements and written comparisons, by total cost as well as the monthly payment.
5. Sign, then use the cooling-off period if you change your mind: you have 5 business days to withdraw, and fees are refunded less any reasonable direct costs disclosed in advance.
6. Move the loans. Your current lender must let a loan go without undue delay. It cannot make you explain the move or share the competing offer unless it suspects financial crime, and any offer to keep you must be in writing (Consumer Protection Standards, Article 5).
7. Close the old accounts. Check that each loan and card is settled and closed, collect your cheques and a no-liability letter for each, and confirm your credit report shows them as closed (closing cards and clearance letters).

When consolidation is not open to you

If your loan and card repayments already reach the 50% cap, or you are behind on payments, a new lender may decline: the rules bar lending beyond your eligibility, and no lender has to approve you. Your current lenders must give reasonable consideration to alternative arrangements when you approach them, and confirm any revised arrangement in writing (Consumer Protection Standards, Article 5). A term beyond 48 months may be permitted only in exceptional circumstances, such as rescheduling on retirement or loss of income (Regulation 29/2011, Article 20).

See restructuring or settling with your bank for deferrals, restructuring and settlements, and what happens if you have already missed payments. Other topics are in our debt help guides, and the glossary defines debt consolidation.