Is there an interest rate cap on loans in the UAE?

There is a cap on the gap-filling rate. Article 72 of Federal Decree-Law No. 50 of 2022 applies the rate stipulated in the contract, and where none is stated applies the market rate prevailing at the time of the transaction provided it does not exceed nine per cent up to full repayment. Article 88 separately prohibits compound interest, including as complementary compensation.

Can a UAE borrower repay a commercial loan early?

Not as of right where the term is fixed. Article 75 of Federal Decree-Law No. 50 of 2022 provides that where the loan term is definite the creditor is not bound to accept repayment before it falls due unless the debtor pays the interest accruing for the remaining period of the term, unless the parties have agreed otherwise.

What limits apply to personal loans in the UAE?

The UAE Government Portal states the Central Bank limits: a personal loan must not exceed twenty times the borrower's salary or total income, the repayment period must not exceed forty-eight months, and the monthly deduction must not exceed half the borrower's salary. Post-dated cheques taken as security may not exceed one hundred and twenty per cent of the loan or debit balance, and the rate must be declared on a reducing balance annual basis.

Loan Agreement in the UAE

UAE loan drafting sits on two layers. Federal Decree-Law No. 50 of 2022 fixes the commercial defaults: the contract rate of interest applies, and where the contract is silent the market rate at the time of the transaction applies but may not exceed nine per cent until full repayment. Compound interest cannot be claimed at all. On top of that, Central Bank consumer lending limits cap a personal loan at twenty times salary over no more than forty-eight months.

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Governing law

Federal Decree-Law No. 50 of 2022 promulgating the Commercial Transactions Law governs interest, repayment and delay on commercial loans in Articles 72 to 75 and 84 to 88.

Federal Decree-Law No. 50 of 2022, Arts. 72 to 75 and 84 to 88

What a loan agreement has to contain in the UAE

A creditor may take interest on a commercial loan at the rate stipulated in the contract. If no rate is stated, interest is calculated at the market rate prevailing at the time of the transaction, provided it does not exceed nine per cent up to full repayment.
Federal Decree-Law No. 50 of 2022, Art. 72
Where the contract stipulates a rate and the debtor delays repayment, delay interest is calculated on the agreed rate until full repayment. Interest is paid at the end of the year where the loan term is one year or more, or on the maturity date where the term is shorter, unless commercial or banking practice requires otherwise.
Federal Decree-Law No. 50 of 2022, Arts. 73 and 74
Where the loan term is definite, the creditor is not bound to accept early repayment unless the debtor pays the interest accruing for the remaining period of the term, unless the parties agree otherwise.
Federal Decree-Law No. 50 of 2022, Art. 75
A creditor may not claim compound interest, meaning interest on frozen interest, nor claim such interest as complementary compensation.
Federal Decree-Law No. 50 of 2022, Art. 88
For consumer lending, the Central Bank of the UAE limits personal loans to twenty times the borrower's salary or total income, with a repayment period no longer than forty-eight months and a monthly deduction of no more than half the borrower's salary. Banks and finance companies may take post-dated cheques covering instalments only up to one hundred and twenty per cent of the loan or debit balance, and must calculate and declare the interest rate on a reducing balance annual basis.
Loans for individuals (Central Bank of the UAE lending limits), UAE Government Portal
A car loan is treated separately from a personal loan, may not exceed eighty per cent of the value of the financed vehicle, and may not run longer than sixty months, again against a monthly deduction of no more than half the borrower's salary.
Loans for individuals, UAE Government Portal

What catches drafters out

Delay interest is close to automatic. Where a commercial obligation is a sum certain and the debtor delays, he owes the Article 72 and 73 interest as compensation unless otherwise agreed, the creditor need not prove damage, and the interest runs from the maturity date.
Federal Decree-Law No. 50 of 2022, Arts. 84, 85 and 86
Borrowers should not count on a court-granted grace period. Courts will not give a debtor under a commercial obligation time for full payment or payment in instalments except with the creditor's consent or in general exceptional circumstances.
Federal Decree-Law No. 50 of 2022, Art. 82