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19 March 2024

Are UAE expats taking second loans to repay first?

Published
By Shuchita Kapur

For those in a financial mess, it’s an easy option to take small loans to pay another one and the cycle continues to tide them over until the next payday.

An earlier survey indicated that most UAE residents are in debt, but new figures reveal another situation which is still worse… the simple and easy way to get out of debt by taking another loan to pay off the first one.

According to a new survey by UAE-based finance comparison site www.compareit4me.com, the percentage of UAE residents using their credit card or personal loan to repay another debt continues to rise.

Survey results show that around 28 per cent of those who responded to a poll conducted between July and August 2014 say they are guilty of this bad financial habit, up from the 20 per cent recorded a year ago. One in two also confessed to owning more than one credit card.

“Majority (77.3 per cent) of the survey respondents have credit cards, with a quarter of them owning more than three cards. This is a rather risky trend, especially if consumers find their monthly debt repayments becoming unmanageable,” said Jon Richards, CEO of the website.

The survey also reveals that more than 11 per cent of respondents use their personal loan for debt consolidation, “becoming a kind of stop-gap measure to suit an immediate financial need,” Richards added.

The latest data from the UAE Central Bank shows that consumer lending is up in the country, which indicates growing confidence of residents but may also mean that those living in the country are caught up in the vicious cycle of taking a fresh loan to pay off an old one.

The Central Bank data shows that personal loans account for 77.5 per cent of the total increase in new loans provided by banks to customers in all sectors in June. UAE banks’ personal loan book grew by 0.8 per cent to Dh295.9 billion ($80.5 billion) during the month from Dh293.5 billion ($80 billion) in May.

But in certain cases, this may make sense. For example, the interest rate changed on credit card debt is a lot more than, say, personal loan so many residents may end up using their personal loan to pay off liabilities that attract higher interest rates.

The survey also shows that the majority of people who answered the survey are managing their debts.

“There are however 28 per cent of respondents who are finding debt repayments difficult and this is a concern. The cost of living in Dubai is rising and unfortunately at a faster rate than salaries. This is forcing some to use debt to cover basic costs like rent which is clearly not sustainable,” the survey states.