Personal loan buyouts: moving your loan to another bank

A personal loan buyout means a new lender pays off your existing loan and you repay the new lender instead. Central Bank rules let you move a loan to another UAE bank or finance company without undue delay, for an early-payment fee of no more than 1% of the outstanding balance or AED 10,000, whichever is less.

Key takeaways

• In a buyout the new lender settles your old loan, which is closed, and you repay the new lender.
• The fee for moving a loan is capped at 1% of the outstanding balance or AED 10,000, whichever is less; your lender may charge less.
• The new loan is assessed like any personal loan, within the 50% repayment cap, 20 times salary and 48 months.
• A buyout saves money only if the interest avoided exceeds all fees on both sides, so compare total cost and APR, not the instalment.

What a personal loan buyout is

A buyout is a way of changing lender without changing what you owe. A second bank or finance company approves a new loan, uses it to pay off your existing loan, and you repay the new lender from then on.

It is not the same as a top-up, where your current lender adds to the loan you already have, and it is not the same as taking a separate new loan alongside the old one. In a buyout the old loan is closed and only one loan remains. The usual reasons to consider it are a lower rate, a lower instalment or a different term, and whether it is worth doing depends on the fees and the remaining balance, as the worked example below shows.

What the Central Bank rules say

The rules protect your right to move, and they cap what your current lender can charge you for it.

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 in Appendix 2 sets the same 1% cap, up to a maximum of AED 10,000, for early settlement from other bank loans. It is a ceiling, not a standard charge, so your lender may charge less, and the cap is before VAT. The full rules on settling in full or in part are in early settlement of a personal loan.

Two further protections come from the Consumer Protection Standards:

• Under Article 5, a lender must let you transfer your loan to another bank or finance company in the UAE without undue delay.
• Under Article 7, before refinancing or consolidating existing loans, a lender must give you a written comparison of the total interest payable on the existing loans against the new one.

How a buyout works, step by step

The exact process, documents and timing are each lender’s own, but the sequence is usually the same.

1. Ask your current lender for a written settlement figure. This is the outstanding balance plus any early settlement fee, valid until a stated date. Your current lender cannot make you explain why, or show it the competing offer, unless it has evidence of a financial crime risk.
2. Apply to the new lender as for any new loan. It assesses your income, your existing commitments and your credit report, and gives you a Key Facts Statement with the APR and fees before you sign.
3. The new lender pays your old lender. Make sure the settlement figure has not expired when the payment is made, and keep paying instalments on the old loan until the payoff is confirmed, so that no payment is missed in between.
4. Collect your paperwork. After the payoff, ask for the post-dated cheques you gave the old lender and for a no-liability letter. The deadlines are set out in the early settlement guide.
5. Check your credit report. Confirm that the old loan shows as closed and that the new one appears correctly. You can check your AECB report.

A new loan is still a new loan. The same Central Bank limits apply to it as to any personal loan: all monthly repayments within 50% of gross income, a loan of at most 20 times monthly salary and a term of up to 48 months. See how much personal loan you can get and personal loan eligibility for how those limits are applied.

When a buyout can save money

A buyout saves money only if the interest you avoid on the old loan is greater than the early settlement fee plus every fee on the new one. Compare the total cost of both options over the remaining months, not the instalments alone.

Rate quotes are the usual trap. A flat rate and a reducing rate cannot be compared directly, so compare the APR shown in each Key Facts Statement, or convert the quotes first using flat vs reducing rate.

Worked example

AED 100,000 outstanding with 30 months left

The balance, the term and both rates are illustrations, not market rates. Both loans are on a reducing balance. Figures are rounded to the nearest dirham.

1. Current loan: AED 100,000 outstanding at 12% a year, 30 months left. The monthly rate is 1%, so the instalment is about AED 3,875. Over 30 months you would repay about AED 116,240, which is about AED 16,240 of interest.
2. New loan: AED 100,000 at 8% a year over the same 30 months. The monthly rate is about 0.667%, so the instalment is about AED 3,691. Over 30 months you would repay about AED 110,744, which is about AED 10,744 of interest.
3. Interest avoided: AED 16,240 − AED 10,744 = about AED 5,496.
4. Early settlement fee at the cap: 1% × AED 100,000 = AED 1,000, which is below the AED 10,000 ceiling. Your lender may charge less.
5. Net saving before the new lender’s own fees and any insurance: AED 5,496 − AED 1,000 = about AED 4,496.

In this illustration the buyout saves about AED 4,496 only if the new lender’s fees are lower than that amount.

Change the inputs and the answer changes. With few months left, little interest remains to be saved, so the same fees can wipe out the gain. Stretching the term to lower the instalment can also raise the total interest even when the rate is lower.

Buyout, top-up or new loan

If you also need extra cash, a buyout is not the only route. The three options differ in what happens to the old loan.

What to check before you switch

• The settlement figure in writing. Ask your current lender for the exact payoff amount and its expiry date.
• The new lender’s Key Facts Statement. Compare APR, fees and the early settlement terms of the new loan, since you may want to leave it early too.
• Salary transfer and security. Some lenders price loans differently with and without a salary transfer, and may ask for post-dated cheques as security. See personal loans without salary transfer.
• Insurance. If the old loan carried credit insurance, ask what happens to it on settlement and what the new lender requires.
• Your cooling-off right. Consumers have 5 complete business days after signing a credit contract to withdraw without undue cost under Article 5 of the Consumer Protection Standards. Ask the new lender how withdrawal would work if it has already paid off your old loan.
• Timing. Keep paying the old loan until the payoff is confirmed.

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