Most expats come to the UAE with dreams of a better lifestyle than in their home countries. Many aspire to own a big house, a car or a business that can support them for the rest of their lives. And in most cases, their dreams do come true. The past few years have seen a rising demand for personal loans in UAE, particularly from the expats. Expats who are earning an average middle class income opt for loans to meet their various financial needs. This distinctive financial trend can be largely attributed to factors such as:-

Easy Availability and Lower Costs

Loans are easily available in the UAE. Moreover, loan interest rates in the UAE are much lower than what's offered in most countries. For e.g. Out of the eight million expats in the UAE, approximately 2.8 million are Non-Resident Indians (NRIs), which accounts to the largest expat community in the country. NRIs prefer to opt for loans in UAE and then later invest in India. The second quarter of the year saw the NRIs remitting Dh14.64 billion, or around 35.9 per cent of the total value of the UAE remittances. This is primarily due to the fact that the personal loan interest rates in UAE are much lower than in India. Interest rates for personal loans in India is around 16 to 18 per cent while in UAE it varies from 5 to 22 per cent depending on the loan. Hence, financially it makes much more sense to take up a loan in UAE than in India.

To counter the high cost of living

Right from house rent to children's education, everything has become more expensive over the past few years in the UAE. The rapid rise in the cost of living has forced many expatriates to opt for personal loans, in order to bridge their financial gaps. This is because, obtaining some extra financing via loans can be much cheaper than credit cards given the low interest rates. Moreover, as more banks enter the market to meet the growing demand for education-linked products, expatriates are increasingly turning to loans for paying education fees.

Exchange rates benefits

Expats can enjoy higher exchange rate returns and benefit from higher loan value when they opt for a loan in the UAE. Those expats who need financing for usage in the UAE itself, it makes more sense to opt for loans in the UAE as they would not incur any currency conversion charges and secure better interest rates.

While it's true that opting for a loan in UAE may seem like a lucrative option for an expat, in reality there are several factors that can potentially offset the gains. For instance, currency rate fluctuations can lower the savings achieved due to the variation in interest rates. Additionally, UAE banks have more stringent eligibility criteria for expats as compared to local residents. Expats can also face restrictions from banks in their home country for loans that require the applicant to be a resident. On the flip side, cons such as high penalty on missing any payments can also be problem of UAE expats striving to make ends meet.

The views expressed here are those of the authors and do not necessarily represent or reflect the views of Citibank UAE