UAE: Fast digital loans offer convenience, but experts warn of risks for some borrowers
Although fast digital loans are accessible and hassle-free for customers, they are at risk of becoming a debt trap when borrowers rely on new credit to repay existing obligations rather than on stable monthly income, UAE experts have warned.The experts highlighted growing concerns about app-based lending among vulnerable groups.Brijesh Kumar, Chief Business Officer at Paisabazaar.ae, said the danger escalates when short-term digital loans are used to cover routine expenses such as rent, utilities, or tuition fees rather than genuine emergencies. “Once a borrower starts rolling over short-term credit to manage cash flow, the cost of credit rises sharply and financial stress compounds very quickly,” he said.Stay up to date with the latest news. Follow KT on WhatsApp Channels.Students, gig workers, and low-income earners are particularly exposed, Kumar noted, as irregular or delayed salary payments can clash with the short tenures typical of digital loans. High processing fees and penalties can quickly consume a disproportionate share of income, leaving borrowers with little room to meet basic needs. “For low-income borrowers, even one missed instalment can trigger a spiral of penalties or additional borrowing,” he added.While the UAE has a robust regulatory framework for consumer lending, Kumar said challenges remain at the execution level, especially with fast, app-based credit products aimed at younger users.He pointed out that although disclosure and affordability rules exist, the speed and simplicity of digital lending can obscure the true cost of borrowing. “There is room to strengthen controls around repeat borrowing, clearer cost communication, and tighter affordability assessments,” he said, adding that the Central Bank has shown a progressive approach to evolving regulation alongside new product designs.Kumar also cautioned that while digital lending has supported financial inclusion, particularly for individuals new to the banking system, it can also shift risk onto borrowers if affordability checks are weak. “In such cases, risk quietly moves from institutions to individuals who have limited financial buffers and face employment-linked residency constraints,” he said.He stressed that financial education must play a central role in addressing these risks, particularly in a country with a young and diverse expatriate population. Borrowers need to understand repayment obligations, fees, and credit bureau implications before taking instant loans, he said. However, responsibility does not rest solely with consumers. “Lenders must design responsible products, regulators must enforce guardrails, and educational institutions should introduce practical financial literacy early,” Kumar said.Vijay Valecha, Chief Investment Officer at Century Financial, focused on the structural risks of short repayment timelines, noting that fast digital loans are often mismatched with irregular income patterns. “For students and gig workers, income is not always predictable, but repayments are,” he said. “When loans must be repaid in weeks rather than months, even a small delay in income can trigger late fees and force borrowers to take additional credit.”Valecha warned that this cycle can have long-term consequences beyond immediate cash stress. “As more short-term and BNPL data is expected to be captured by credit bureaus, a missed payment today could limit access to major financing such as home loans in the future,” he said, adding that short-term convenience can carry lasting credit implications.Faris Ali, Managing Director at Jawab Economic & Management Consultants, addressed the role of regulation and responsibility, saying the UAE has made meaningful progress in bringing digital lenders under formal oversight. He pointed to Central Bank requirements that providers be licensed or operate under approved financial institutions, alongside consumer protection standards.However, Ali cautioned that regulation alone cannot prevent harm if products are structured around repeat borrowing. “Digital lending can promote inclusion when loans are repayable from predictable income and used occasionally,” he said. “But if the model depends on short tenures, high fees, and frequent re-borrowing, it becomes a mechanism for transferring financial risk to individuals least able to absorb it.”On financial education, Ali said awareness must be paired with built-in safeguards. “Education helps people understand risk, but it cannot replace protections,” he said. “Just as drivers are taught road safety, seatbelts and speed limits remain the responsibility of manufacturers and regulators.”UAE residents welcome removal of minimum salary for loans; experts advise cautionUAE residents can now track and improve their credit score in real-time
Although fast digital loans are accessible and hassle-free for customers, they are at risk of becoming a debt trap when borrowers rely on new credit to repay existing obligations rather than on stable monthly income, UAE experts have warned.
The experts highlighted growing concerns about app-based lending among vulnerable groups.
Brijesh Kumar, Chief Business Officer at Paisabazaar.ae, said the danger escalates when short-term digital loans are used to cover routine expenses such as rent, utilities, or tuition fees rather than genuine emergencies. “Once a borrower starts rolling over short-term credit to manage cash flow, the cost of credit rises sharply and financial stress compounds very quickly,” he said.
Stay up to date with the latest news. Follow KT on WhatsApp Channels.
Students, gig workers, and low-income earners are particularly exposed, Kumar noted, as irregular or delayed salary payments can clash with the short tenures typical of digital loans. High processing fees and penalties can quickly consume a disproportionate share of income, leaving borrowers with little room to meet basic needs. “For low-income borrowers, even one missed instalment can trigger a spiral of penalties or additional borrowing,” he added.
While the UAE has a robust regulatory framework for consumer lending, Kumar said challenges remain at the execution level, especially with fast, app-based credit products aimed at younger users.
He pointed out that although disclosure and affordability rules exist, the speed and simplicity of digital lending can obscure the true cost of borrowing. “There is room to strengthen controls around repeat borrowing, clearer cost communication, and tighter affordability assessments,” he said, adding that the Central Bank has shown a progressive approach to evolving regulation alongside new product designs.
Kumar also cautioned that while digital lending has supported financial inclusion, particularly for individuals new to the banking system, it can also shift risk onto borrowers if affordability checks are weak. “In such cases, risk quietly moves from institutions to individuals who have limited financial buffers and face employment-linked residency constraints,” he said.
He stressed that financial education must play a central role in addressing these risks, particularly in a country with a young and diverse expatriate population. Borrowers need to understand repayment obligations, fees, and credit bureau implications before taking instant loans, he said. However, responsibility does not rest solely with consumers. “Lenders must design responsible products, regulators must enforce guardrails, and educational institutions should introduce practical financial literacy early,” Kumar said.
Vijay Valecha, Chief Investment Officer at Century Financial, focused on the structural risks of short repayment timelines, noting that fast digital loans are often mismatched with irregular income patterns. “For students and gig workers, income is not always predictable, but repayments are,” he said. “When loans must be repaid in weeks rather than months, even a small delay in income can trigger late fees and force borrowers to take additional credit.”
Valecha warned that this cycle can have long-term consequences beyond immediate cash stress. “As more short-term and BNPL data is expected to be captured by credit bureaus, a missed payment today could limit access to major financing such as home loans in the future,” he said, adding that short-term convenience can carry lasting credit implications.
Faris Ali, Managing Director at Jawab Economic & Management Consultants, addressed the role of regulation and responsibility, saying the UAE has made meaningful progress in bringing digital lenders under formal oversight. He pointed to Central Bank requirements that providers be licensed or operate under approved financial institutions, alongside consumer protection standards.
However, Ali cautioned that regulation alone cannot prevent harm if products are structured around repeat borrowing. “Digital lending can promote inclusion when loans are repayable from predictable income and used occasionally,” he said. “But if the model depends on short tenures, high fees, and frequent re-borrowing, it becomes a mechanism for transferring financial risk to individuals least able to absorb it.”
On financial education, Ali said awareness must be paired with built-in safeguards. “Education helps people understand risk, but it cannot replace protections,” he said. “Just as drivers are taught road safety, seatbelts and speed limits remain the responsibility of manufacturers and regulators.”
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