UAE loan transfers: Will switching banks actually save you money?

Dubai: Switching banks to save money on loan repayments can be tempting, but it requires careful consideration of various factors. The savings depend on the total interest or profit over the loan's life, as well as any associated costs. A new regulation, effective January 2027, may restrict loan transfers, requiring borrowers to remain with their original lender for a minimum period or pay stipulated instalments before moving.

Analysts recommend comparing the total cost of loans, not just the monthly instalment, and examining written comparisons provided by lenders. These comparisons must detail the total interest or profit payable under both existing and proposed facilities, including any setup charges and the cost of settling the original loan. Banks set to introduce these new rules may also charge processing fees, insurance, and other fees that can diminish the apparent benefits of a transfer.

Refinancing can also result in higher overall costs if the combination of interest rates, fees, and loan term proves more expensive than the original terms, even with a lower monthly payment. Repayment holidays may provide temporary relief but can increase the total cost due to accrued interest or profit. Borrowers should assess their household affordability and consider the impact of increasing expenses on their debt-service ratio.

While the new regulations may influence competition among banks, Kamran advises treating any potential move as a decision based on current numbers and staying vigilant for any future changes.