Is it More Cost Effective to Take a Loan in India or Dubai UAE?
A usual dilemma of Indian expatriate in the UAE is whether it is cheaper to take loan in India or in UAE or specifically in Dubai. This is based on costs such as the interest rate, exchange rate fluctuation and taxation costs. To establish the most financially efficient decision let’s consider these aspects.
Interest Rates
Actually, there are a few floating variables, but the one requiring more consideration is the interest rate. In fact, the interest charges, which are obtained from a personal loan for citizens of the UAE are within the range of 4% to 6%; which is relatively lower than interest rates charged in India at about 14% to 18%. This makes the cost of borrowing less in the UAE hence the cost to the loan is also less.
Currency Risk
Loans to the public in the UAE are quoted in dirhams which are at par with the US dollars. This implies that there is no foreign exchange risk when some organization sources for a loan within the UAE and to repay the loan in the same currency. On the other hand, taking a loan in India means exposing itself to currency risk if the loan is utilized in the UAE or if the Indian rupee declined against the dirham. This can become costly because the exchange rates are usually unfavorable and there will be charges for exchanging the money.
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Tax Implications
The other important consideration is the effect of the taxes will be. It’s true that the interest rates in India on loans might be a little on the higher side but the returns on investment in India are also liable for more taxes at times. That is, the net returns after taxes may not justify the higher borrowing costs. On the other hand, as the UAE has no taxes, it may be even more appealing as the interest on the loans is the only real expense that firms might face.
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Practical Considerations
Although it may be financially sensible to borrow in UAE at lower interest rates and invest in India the reality has these practicalities. Secured loans in the UAE needs collateral and it becomes a problem when the property out of UAE but business is in UAE and assets are in India. However, ego borrowing, as unsecured loans are referred to, exist, and can still be costly despite the preferential rates in the UAE.
And concerning the choice of the country through which to take a loan, for NRIs it is often cheaper than taking a loan in their own country since the UAE has lower interest rates, there is no currency risk, and no taxes. But one also has to look at the realistic concerns like the security required for such a loan and also the stability of your income in dirhams or other sound currencies to cope with the repayments.