Buyout loan: Interest Rate, Benefits, Best Lenders, How to Apply?

Nothing is more overwhelming than struggling to pay off multiple debts and personal loans. However, a buyout loan is a great way to repay your debts via consolidation. With this type of loan, you consolidate your outstanding debts into a new, single loan - often at a lower interest rate. This way, your repayments are simplified, and your finances are no longer hurt. 

A Quick Glimpse into Buyout Loan

• It combines multiple debts into one loan
• The monthly instalments reduce 
• It helps manage your credit cards’ and other loans’ interest 

However, to qualify for this loan, you need a solid repayment history and a debt-to-income ratio below 50% of your monthly salary. 

Top Banks that Offer Buyout Loans in UAE

Here’s the list of the best banks that offer buyout loans. Note that some banks also offer a buyout facility within their personal loans.

Bank	Amount	Minimum Monthly Salary Requirement	Interest Rate	Tenure
FAB Buyout Loan	Up to AED 5 million for UAE nationals | Up to AED 2 million for expatriates	AED 7,000	Starting from 4.7% p.a. (fixed) for UAE Nationals | Starting from 5.44% p.a. (fixed) for Expatriates	Up to 48 months
Finance House Buyout Loan	Up to AED 320,000	AED 5,000	N/A	Up to 48 months
ADIB Buyout Loan	Up to AED 30 million | Up to 80% of the property value	AED 10,000 (for salary transfer) | AED 15,000 (for non-salary transfer)	Starting from 3.99% p.a.	-

What are the Benefits of a Buyout Loan in UAE?

Buyout loans are a practical option if you have multiple debts and want to simplify them. Here are the benefits of buyout loans in the UAE -

• Single EMI rather than multiple payments
• Better repayment tracking
• Helps stabilise and improve credit Score
• The interest rate is potentially lower
• Reduced financial stress

Does Buyout Loan Reduce Monthly Instalments?

Yes, a buyout loan does reduce monthly instalments. It helps you repay your high-interest debts by combining them into a new loan with a lower interest rate and/or longer repayment period. This makes the debt more manageable with monthly payments. With consolidation, you lower the monthly cash outflow, freeing the funds for other expenses.

How Does a Buyout Loan UAE Work?

More than a financial product, a buyout loan is a strategic way for you to transfer your existing debt to a new bank. The idea is to get a debt at more favourable terms. You can refinance in the following ways -

1. Refinancing - You can refinance your current loan with a new lender that offers better conditions. This could be a lower interest rate, improved repayment tenure, and reduced monthly payments. 
2. Debt Consolidation - You can also consolidate multiple loans into one buyout loan with a new lender. This simplifies debt management and lowers the overall borrowing costs.

Note that the process of getting a buyout loan also involves evaluating existing loan terms, negotiating with the new lender, and managing associated fees and penalties.

Here’s a simplified version of how getting a buyout loan works -

Old Loan → Buyout Approval → Settlement → Single Monthly Instalment

Here’s an example of how a buyout loan works in the UAE. 

Ahmed is a 34-year-old executive in the UAE, earning AED 15,000 per month. With time, he took multiple credit facilities to manage expenses, including -

• personal loan - AED 85,000 (remaining loan)
• Salary transfer loan - AED 40,000 (outstanding amount)

Note that each liability has different interest rates and payment dates.

Thus, his monthly financial obligations are around -

• Personal Loan Monthly Instalment - AED 2,150
• Second Loan Monthly Instalment - AED 1,050

He realised that -

• Payments are due on different dates
• About 30% of his salary goes towards debt repayments.

He, thus, applied for a buyout loan from another bank at a lower interest rate. For that, he -

Applied for a loan with a new bank

• Got the liability verified
• Settled the existing loans
• Closed the old loans
• Started paying new monthly instalments

This -

• Simplified financial planning 
• Lowered monthly instalments and improved the savings
• Reduced the risk of high missed payments

How Much Buyout Loan Can You Get in the UAE?

The buyout loan amount largely depends on your income, debt burden ratio, and credit score. As per the UAE regulations, your debt burden ratio should be lower than 50% of your monthly income. It determines what portion of your debt can be consolidated or transferred.

What are the Risks to Consider When Applying for a UAE Buyout Loan?

While a buyout loan helps you manage multiple loans, they do carry some financial and legal risks if it is not handled properly. Here are the risks you need to be aware of -

• Even though the interest rate is low, the extended loan repayment tenure can lead you to pay more interest over the life of the loan. This can eventually increase the debt burden.
• Buyout loans often have additional charges, like processing fees, origination fees, or pre-closure charges on the loans being bought out. 
• Every new loan triggers a hard inquiry on your credit report, temporarily lowering your credit score. 
• Once your multiple debts are cleared, there’s a chance to start a new credit line, creating another debt cycle. A buyout loan in such a situation appears to be a temporary fix. 
• Missed payments on consolidated loans can lead to higher interest rates, stricter penalties, and grave consequences.

Insider’s Advice: Avert these risks by following some practical tips mentioned below. 

• Practice financial discipline if you have a pattern. We don’t want you to have a poor credit score, ever. 
• Compare the offers thoroughly! Don’t go with the advertised interest rate — check the APR and fees thoroughly. 
• Select the shortest repayment tenure to minimise the total interest you would need to pay. 
• Close or freeze cards that have been paid off so as not to accumulate new debt. 

What is the Difference between a Buyout Loan and a Balance Transfer in the UAE?

Here’s a quick rundown of the difference between a buyout loan and a balance transfer -

Features	Buyout Loan	Balance Transfer
Scope	Covers home and personal loans to restructure debt	Focus is on high-interest credit cards
Purpose	The aim is to reduce interest/payment in the long term	The objective is to use low-interest promotional rates to repay debt faster
Process	It closes the old credit line completely	The balance transfer shifts the balance to a new lender

Who Should Apply for a UAE Buyout Loan?

A buyout loan is ideal for UAE residents managing multiple debts or paying high interest rates on their loans. It is largely used by borrowers with multiple debts who are looking for lower interest rates, simplified repayments, and improved financial planning through one consolidated debt.

When Should You Apply for a Buyout Loan in UAE?

Before you apply for a buyout loan, you should consider the scenarios discussed below.

WHEN SHOULD YOU APPLY?

Buyout loan is a suitable choice if -

• You plan to combine multiple loans into a single loan and convert them into manageable monthly instalments
• You want to take advantage of the lower interest rate that the other banks offer
• You want to improve your cash flow and free up expenses
• You want a better repayment tenure or a flexible repayment structure

WHEN SHOULD YOU NOT APPLY?

A buyout loan is not a feasible option if -

• You would need to pay a high early settlement fee that outweighs the lower interest rate
• The total interest has increased, and your loan extends your repayment period — this can eventually increase the total interest payments
•  Your loan is near completion
• You are planning a large financing soon

Which Lender is the right one for buyout loans?

Thinking about availing of the debt consolidation facility through buyout loans? There are many lenders that offer multiple benefits, choosing the right one amongst the many can be quite confusing. Borrowers should carefully evaluate their needs and ability to repay before they decide on a lender. The primary factors one should look into before taking a buyout facility should be:

1. The loan repayment period
2. The interest rate charged and how much less it is from the rate of interest on your existing loans
3. The minimum salary required by each lender

What are the eligibility criteria for a loan buyout in UAE?

Most banks have specific requirements that have to be met for a borrower to be eligible to avail of such loans. Here are the eligibility criteria for the loan:

1. The pre-existing loan should not be more than six months old
2. Approximately 30 percent of the loan’s installments should be paid off
3. There should not be any record of missed or delayed payments

Required Documents to apply for a loan buyout facility:

Just like the eligibility criteria, each bank has its own documentation requirements for processing the applicant’s loan application. Other than the application form, borrowers need the following documents:

1. The applicant’s bank statements for a minimum period of six months
2. The applicant’s salary certificate
3. For UAE residents, the Emirates ID and its copy
4. For Expatriates, the passport and Visa copies
5. The applicant’s salary continuation certificate
6. Loan purpose along with supportive documents