With multiple Banks offering Personal Finance Products, you may feel that you have a product which is not suited to your liking. The finance industry has gone through major changes over the past few years, with rates changing from 2.35%* per year in 2012, down to 1.30% in 2015.
The personal finance product is available for varying tenors, however as per market practice, a vast majority of customer choose to take longer tenors (60 months as the maximum length for Personal Finance as per SAMA Regulations) in order to avail larger sums of cash. Keeping this in mind, you may have taken a finance in 2014, the rate of which may be considered high for 2015.
Keeping this in mind, SAMA has issued a new update in order to assist customers with the transition between banks, to ensure that the customer can avail the best possible rates (eligibility may vary for rates based on internal classification of employers as per Bank Policy).
Below are the steps by which you can switch your financing product if you need:
- Contact multiple banks in order to enquire about the rates you may be eligible for
- Confirm if the bank requires you to assign your monthly income to their account
- Speak with your employer to check if they have an agreement with any bank, based on which you may be eligible for a preferential rate
- Considering that you will be entering into a financial contract, ensure that you are able to keep up with your monthly instalments for the amount which you are borrowing (as per regulations, a customer can only assign 33% of their monthly income towards paying instalments of credit cards and personal finance)
- Most importantly, always ensure that you borrow only what you need – this is crucial as it will help you in becoming debt free in a shorter duration of time
Once you have made your decision, you can inform the new bank of your desire to apply for a “buy over financing”.
- The new Bank will require you to get a “letter of debt” from your current bank.
- Your existing bank may request for a nominal fee in order to issue this document
- Once this document is issued, you can take the same to the bank you would like to switch to. (The new bank will use the same to calculate your final eligibility – The amount of financing and your new instalment amount)
- Upon completing the contract formalities with the new bank, you will be required to visit your current bank and request for an early settlement, at which point you will receive a document highlighting your current/final dues.
- Submit the same to your new bank, which will initiate the process of transferring (via SARIE – Interbank transfer system) the required funds to your current bank for settling the due amounts.
- Once this amount is transferred, your current bank will issue you a clearance letter, stating that you do not owe the bank any funds towards your personal finance.
- This clearance letter is to be submitted to your new bank.
- Post this step, your new bank will transfer the remaining funds into your account (in a majority of cases you will be required to open an account with the new bank and have your salary assigned from your employer)
SAMA has always placed the best interest of the consumers at the forefront in an effort to ensure customers have the freedom to switch between service providers in order to avail the most competitive financing products which are available in the market. They as well insist on ensuring that you do not over burden yourself financially and have placed a requirement on all banks and financing service providers to have a credit consultant available, who can advise customers on financial related matters.
If you are unsure or have any queries, request to speak to this member of staff, who can better guide you towards managing your finances.
[Related: The guide on qualifying for a family loan]
*Flat rate as issued by banks – Example:
Amount Financed – SAR 100,000
Tenor – 5 years
Flat Rate – 2.50%
Profit Amount – (2.50 x 5) = 12.5% SAR 100,000 x 12.5% = SAR 12,500
Total Payable to bank at the end of 5 years – SAR 100,000 + SAR 12,500 = SAR 112,500