Banks lure clients with ‘easy money’

No, I’m not talking about emails that promise a handsome cut of the unclaimed money left behind by an heirless tycoon. My email provider’s spam filter has, mercifully, matured enough to weed out most of those from my sight.

What I’m talking about are the numerous genuine offers for personal finance that UAE banks are bombarding us with on a daily basis.

Whether it is for an ‘instant’ personal loan that promises cash in my account within 24 hours, 0% interest on balance transfer to a free-for-life credit card, a Dh999 down payment for my next sedan, or a free BlackBerry phone with a debit card that will be in my hands before I finish my cappuccino, the offers are many and, indeed, mouthwatering.

Moody’s Investor’s Services came out with a report last week warning that the Gulf nations will experience another round of modest cash crunch as European banks recede from the horizon owing to macroeconomic problems in their respective home basis.

The global ratings agency added that in order to meet the gap resulting from an anticipated pullback by European banks, local GCC banks would need to grow as well as adjust their own funding structures.

However, the number of offers crowding the highway billboards or the daily papers suggests that the liquidity crunch is well and truly behind us, and local banks have indeed taken the baton from their European counterparts and are ready to lend all their deposits – or whatever percentage is legally allowed.

In what reminds me of the good ol’ 2008, not a single day passes by without one of the UAE banks’ reps calling to let me know that I’ve been pre-approved for a personal loan x times my salary or a credit card that’s of precious metal in nature.

The offers available in the market, though determined by the finance provider, all try to tempt one into either breaking up the payments into ‘6 easy instalments with 0% interest’, or ‘buy now, pay later’ or enticing you to ‘max your flying miles with every purchase’ or ‘get instant cash back’ on purchases of electronics and/or gift items.

Tempting as all these offers are, one mustn’t forget that we’ve hardly recovered from a global recession – something that’s already wiped of trillions of dollars in investment money that belonged to people like you and me – and some of the so-called experts are already warning of another one round the corner.

In such a scenario, the one piece of advice – plain and simple common sense, yet not followed by many – will be that a genuine need should be the underlying factor for evaluating a deal, and not the other way round.

Irresistible as it is, a zero per cent processing fee on a personal loan or a free BlackBerry device or flight tickets with one or the lowest interest rate in the market should not be, under any circumstances, the reason to take out a loan or acquire another credit card.

Yes, if you do need to take out a personal loan in the first place, then it may make sense to go with the finance provider that offers the lowest interest rate or, in case the rates are almost the same, the bank that is throwing in a freebie as a sweetener.

And even then, the most critical deciding factor on whether or not to take out a loan (or how much of it) shouldn’t be whether you need the money, but whether you have the capacity to pay it back, with interest and associated costs.

Courts worldwide are still working overtime to sort out bankruptcy claims, foreclosures and other financial defaults of individuals and corporates that overleveraged themselves during the previous boom. Do yourself a favour - don’t add to their work load by borrowing money you don’t need or can’t repay. And even of you can repay, make sure you’re not borrowing for the wrong reasons.