Parents in the UAE will need to make some difficult calculations and budget planning decisions. Consequently, if parents select to obtain sizable personal loans to bear the cost of their kids’ college education. Obtaining student loans in the UAE might be challenging. The UAE is also more expensive than in America or Europe, although it is less so. If studying in the UAE is your desire, you must make financial arrangements in advance.

But those considering a loan will find little solace in that, as the demand for credit has already been impacted by the series of rate increases through 2022. According to banking sources, the rise in mortgage activity will slow down in the early months of 2023, continuing the trends from Q4-2022.

While many parents take out personal loans with high interest rates to cover their children’s university expenses, Therefore, they also frequently dip into their savings or use systematic investment plans (SIP) programs. But unlike in the West, banks in the UAE lend money to kids for their education based on the qualifications and financial standing of their parents.

A Few Estimations

However, unless their parents earn at least Dh7,000 a month even then children are not eligible for student loans.

Therefore, in the UAE, undergraduate studies cost typically between Dh37,500 and Dh70,000 every year in tuition. According to UAE Assignment Help, the cost of postgraduate degrees starts from Dh55,000 to Dh75,000 every year but living expenses are not included.

Loans Secured by Assets?

According to personal finance experts, asset-backed loans are growing in popularity among families. Therefore, many families are now looking for loans to pay for their children’s education to reduce the burden associated with tuition costs. A “secured loan” is one where the borrower commits a valuable item as security.

The borrower can then request a larger loan amount at comparatively low-interest rates. Borrowers from abroad may receive up to 75% of the asset’s value. Such instruments are available to business owners on their movable and immovable assets from reputable institutions. The institutions include Emirates NBD, Commercial Bank of Dubai, and RAKBANK. The loans may be utilized for private objectives.

Parents run the danger of unstable foreign exchange when they take out loans from banks in their home country, according to Jadwani. This has led to a lot of foreign parents taking out loans in the UAE and securing them with real estate, which is a common decision.

High Rates of Interest

Higher interest rates do, however, nevertheless serve as a deterrent for such loans. Financial advisor Damodhar Mata claims that the interest rates on asset-backed loans in the UAE are currently between 5.9 and 6% on an annual basis.

“Only one year ago, it was 1.99 percent,” Mata remarked.

For instance, suppose a parent owns a property in the UAE that is worth Dh1 million but has a Dh500,000 mortgage that is still owed. ” Banks in the UAE can release an equity of Dh250,000 as a top-up loan. Which can be used to pay university fees,” the speaker continued.

The outstanding mortgage plus the top-up loan, which is Dh750,000, would make up the parent’s total loan. In this instance, the parent pays Dh14,253 per month for 60 months at an interest rate that is lower than 5.29 percent. Moreover, in the UAE, parents can borrow money against their house for up to 25 years.

The parent must have a monthly income of Dh30,000 or more in order to qualify for the bank’s mortgage loan buyouts, according to Mata. (If the parent uses other credit products, including credit cards or bank loans, they risk becoming overextended with debt.)

The rate of interest for a personal loan secured by property may be rather cheap because the property acts as a reliable form of pressure in the eyes of the financial institution.

Refinance?

According to Vishal Dhawan, founder and CEO of Plan Ahead Wealth Advisors, parents who want to lower their interest rates may be able to do so by refinancing their loan via a balance transfer.

They might consider getting a loan with a shorter term if their cash flow or monthly revenue permits them to do so in order to reduce the total interest paid on the loan, added Dhawan.

What Additional Borrowing Choices Do Households Have?

Overdrafts

Additionally, some families choose overdrafts, which is a popular choice among salaried consumers. An overdraft facility offers parents immediate financial assistance equal to up to two times their wage. However, because they are unsecured and have high-interest rates, they are expensive.

Institutions that are Not Banks

Additionally, some parents obtain personal loans from non-banking lenders like Dunya and Gulf Finance.

Approach the College

Parents can request an interest-free installment plan from local and international universities for unpaid tuition costs. In this scenario, parents make monthly payments for higher education expenses, such as rent or school costs.