# Dubai Islamic Bank Personal Loan



## expatteacher2015

Hi all,

I thought I would share my recent experience with DIB and a Sharia compliant loan.

First off - if you are considering getting any debt in Dubai I would say 'DON'T!'. There are no escape routes, or easy get outs like in the UK or other Western Countries. It is linked to your ability to leave the country and stay out of jail. If you need a loan to buy it, you can't afford it!

Second - obviously it is easy to say the above but I clearly needed to take a loan out at some point so hey ho!

Ok - so a Sharia compliant loan works differently to a traditional interest based loan. When you take out an Islamic loan it is actually an agreement to buy a product from the bank (sugar is quite common!). You agree a price for the commodity/ product and the bank lets you pay for it over x number of years. They also allow you to sell all of the product back straight away (therefore you get x amount of cash - the loan). The amount you get as cash is less than the total that you will pay back - this is analogous to interest like a traditional loan.

When you agree the length of time to pay the loan back, you are simply creating easy instalments for paying off the total cost of the commodity. If you choose to settle the loan early, there is no reason why the bank should change the cost of the commodity that you agreed when you took the loan (i.e. the bank does not have to return what non-Islamic loans would call interest that hasn't accrued).

Therefore, you are actually paying back an outstanding total over time. Settling the loan early technically requires you to pay back the full outstanding amount.

However, DIB will calculate a discount if you settle early and are not getting a loan with another company to pay off the debt. This last part is key as it is not clear that this will happen as Islamic loans cannot have an early settlement discount as part of the initial contract.

I was worried about this recently as I had to pay off the loan early and thought I was going to have to pay back a load more than I had to!

Hope this helps someone.

Cheers


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## A.Abbass

expatteacher2015 said:


> There are no escape routes, or easy get outs like in the UK or other Western Countries.


Why would you borrow money then escape or get away ?


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## expatteacher2015

Things like death?! Job loss!? What about a car accident... Or your child falls ill and you want/ need to return to your home country? 

When a bank issues a loan they know there is a risk associated with it due to things like mentioned above. In the UK you can maintain the loan from overseas, or organise a restructuring of the loan to help you.

Here the power is all with the bank; hence in an emergency there is no escape route.

Note that UK banks are harder to obtain loans from.


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## A.Abbass

If you die, God forbids, how would that be a problem with the bank ?

I have taken 2 personal loans before and both with them had insurance against death (insurance pays the outstanding) and disability.

There were banks offering insurance against job loss here in Dubai a couple of years back, don't know what happened to that.

But as you said, it's easy to get the cash here, so there has to be a price to pay.


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## expatteacher2015

The main point I was making was about the way the interest over the term of the loan is calculated in Islamic finance - i.e. a fixed outstanding amount regardless of how long you have the loan for (technically).

I was trying to emphasise that it is possible to have a discount on this total with Dubai Islamic Bank - but they cannot offer this as part of the loan contract.

I believe there is still a job loss insurance available but I wouldn't want to rely on it - I am sure there would be particular clauses that would always go against you (or at least me!).


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## Malbec

So as I understood, everything went well. Which loans are usually better for let's say property purchase, those sharia compliant or interest based?


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## imac

expatteacher2015 said:


> ...Therefore, you are actually paying back an outstanding total over time. Settling the loan early technically requires you to pay back the full outstanding amount.
> 
> However, DIB will calculate a discount if you settle early and are not getting a loan with another company to pay off the debt. This last part is key as it is not clear that this will happen as Islamic loans cannot have an early settlement discount as part of the initial contract...


because it is against sharia to tie the amount of profit to a term... if they did, that would make it interest... 

under sharia you are trading a commodity with the bank for a specified set of payments... and if it is agreed the amount of payment will vary if settled either before or after the agreed date for the payment schedule, its no longer sharia compliant... because at that point it becomes an interest generating loan... which is expressly forbidden by sharia...


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