Experts and readers help solve a reader's concern about taking out a loan to pay for rent.
My problem is quite common for Dubai and across the UAE. I want to rent a studio apartment in The Greens for about Dh60,000 to Dh75,000 and want advice on the best way to finance this. Landlords often want one cheque, which is a lot of money to stump up in one go. So, would it be wise to take out a personal loan from a bank or are there any alternative options? If a loan is best, what bank would you recommend and what sort of interest rates am I looking at? AG Dubai
The expert advice
Ambareen Musa, founder and chief executive of the price comparison website Souqalmal.com.
Rents in Dubai can be expensive and the one-cheque phenomenon does not make it any easier on many of us.
Taking a loan for your expenses is never really the best solution but sometimes, if we are strapped for cash and we need to pay our bills, it can give us some breathing space.
First of all I would probably try to speak to my employer. Many employers in Dubai are understanding and would either give you an interest-free loan to pay your rent or pay you a lump sum, which they then deduct from your salary every month.
If this does not work, try to negotiate with your landlord to get a deal with quarterly cheques — the rent may be a little higher but at least you would solve your cash flow problem.
If there is not an alternative route, there are banks that offer rent finance such as Abu Dhabi Commercial Bank at a flat rate of 7.72 per cent. You have to remember, though, you will be paying interest. Even if you decide to leave your property early, you will still have to pay your loan back.
Also, when choosing a loan, make sure that you understand whether the rate is a reducing rate or a flat rate as this will affect how much you have to pay back. (A flat rate calculates the interest on the entire loan amount, while a reducing rate calculates the interest on the outstanding balance).
Also always ask the bank if there are any additional charges. Remember all these charges and the interest will be in addition to your rent.
Check for arrangement fees – this is an upfront fee you pay to take a loan and can be around 1 per cent of the total loan amount. Other fees would include early settlement paid to the bank if you decide to pay off your loan early.
Depending on your circumstances, your total rent will increase by adding all these charges up.
In the end, whichever path you decide to take, make sure you compare all rent loans before selecting one and calculate your total cost of rent.
The reader’s advice
Brian Smithville, Dubai
I have been stung by landlords and stung by high interest rates on loans so you have a difficult problem on your hands.
My issue with taking out a rental loan is that it makes your rent even more expensive and that’s not a good thing when rents seem to be spiralling upwards and upwards.
I realise tenants are once again facing difficult times with landlords having the upper hand, but there are some reasonable property owners out there.
I would speak to the landlord and ask if you can spread the cost over several cheques. I even know of some tenants paying monthly so it’s worth a shot. Even if the landlord negotiates you down to six or even three cheques it will make those repayments more manageable.
And perhaps it’s time to plan ahead to take the stress out of that annual tenancy contract renewal.
What I’m suggesting here is to save. Far too many people here don’t have the reserves in place to pay their rent upfront.
Yes, this is an unusual scenario, particularly for many expatriates who would not have to do this back in their home nations, but it is the reality here.
Once people accept this is a situation that won’t change, they should put the money aside so that they have the funds in place. It makes sense to me.
Next month’s Money Clinic
I won Dh1 million in the National Bonds draw last week and am going to give half of the winnings to help a close family member clear a bank loan. The rest I am considering reinvesting into National Bonds. I am from Pakistan and have kept all of my savings in National Bonds since the scheme was first launched in 2006, but are there any other investment options I could consider?
Every month The National features a reader’s personal finance problem. If you have an issue or would like to suggest a solution for another’s reader’s concern, write to firstname.lastname@example.org