Planning to apply for a personal loan? Wondering how much you would be eligible to apply for?

It’s best to know the maximum loan amount you can secure before you make a big financial commitment. We shed light on the regulations that govern your personal loan eligibility and the things you must do before submitting your loan application.

Maximum loan amount: What does the regulation say?

According to UAE Central Bank regulations, banks cannot offer a personal loan in excess of 20 times an individual’s monthly salary. So, if you earn AED 10,000 a month, the maximum personal loan you would qualify for is AED 200,000.

But that’s not all. The maximum personal loan amount you can apply for is also subject to your Debt Burden Ratio (DBR). The UAE Central Bank has mandated that a UAE resident cannot have a DBR of more than 50 percent. What that means is the combined monthly installments on your existing loans should not exceed 50 percent of your monthly income. So, if you earn an income of AED 10,000 a month, you must not be repaying more than AED 5,000 towards monthly debt installments.

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Before you apply for a personal loan…

Before you head to the banks, we suggest doing a bit of homework, so you know exactly how much personal loan you can and should apply for.

Calculate your DBR

The first step is to check your DBR. Wondering how to calculate it? It’s pretty straightforward. Make a note of all your existing monthly loan installments. If you have one or more credit cards, take into account 5 percent of the combined credit limit on all the cards. Add these amounts up and divide by your monthly income, to arrive at your DBR percentage.

Don’t want to do the math? Souqalmal.com can calculate your DBR for you. Check your DBR Here.

Check your credit report

With the launch of credit reporting in the UAE, banks can easily check your debt history – How much do you already owe? Have you missed any repayments? And much more…

If you have an existing loan and credit card or have repaid a loan or credit card in the past, it would be best to check your credit report before you apply for another loan. Go through your report to see if all your old repayments have been correctly updated. If the report is missing something, you could end up being offered a higher-than-average interest rate and a lower personal loan amount than what you ideally qualify for.

[Related: Worried about your credit report? Here’s how you can improve it]

Opt for the ‘salary-transfer’ variant

Most banks in the UAE offer two variants of personal loans – One, where the applicant must transfer his or her salary to the lending bank, and the other, where there’s no salary transfer requirement.

If you go with the salary-transfer option, you would not only be able to get a much lower interest rate, but will possibly be able to secure the maximum loan amount offered by the bank.

Consider getting a co-applicant

Some banks offer you the option of applying for a loan with a co-applicant. This can increase your loan eligibility, by taking into account the income of your co-applicant as well.

The co-applicant could be your spouse or close family member. And this personal loan option is a good one if you have a low income, a less-than-great credit score or existing debts that have lowered your borrowing capacity.