UAE: Quick Digital Loans Bring Ease, but Experts Caution Borrowers

While instant digital loans have made borrowing easier and faster for consumers across the UAE, financial experts are cautioning that these products may unintentionally trap borrowers in recurring debt, particularly when loans are used to repay existing obligations rather than being serviced through steady monthly income, experts told Insider18.

Concerns are rising around app-based lending platforms, especially among financially vulnerable segments such as students, gig workers, and low-income earners. Industry specialists warn that the convenience and speed of these loans often hide their true cost, increasing the risk of borrowers falling into a cycle of repeated borrowing.

Brijesh Kumar, Chief Business Officer at Paisabazaar.ae, explained that the risk becomes far more serious when short-term digital loans are taken to fund everyday expenses like rent, utility bills, or school fees instead of genuine emergencies. According to him, once borrowers begin using new credit to manage regular cash flow shortfalls, financial pressure escalates rapidly.

“Rolling over short-term loans may seem manageable at first, but the cost of credit rises very quickly,” Kumar said. “Interest, processing charges, and penalties compound, making it increasingly difficult for borrowers to regain financial stability.”

Kumar pointed out that individuals with unpredictable income streams face the highest exposure. Students, freelancers, and gig economy workers often receive irregular or delayed payments, which may not align with the short repayment tenures typical of digital loans. As a result, even minor disruptions in income can trigger late fees or force borrowers to take out additional loans just to stay afloat.

“For low-income earners, missing even one instalment can set off a chain reaction,” he said. “Penalties accumulate, disposable income shrinks, and borrowers may feel compelled to borrow again simply to meet basic living costs.”

Although the UAE has established a strong regulatory framework governing consumer lending, Kumar noted that implementation challenges persist, particularly when it comes to fast-moving, app-based credit products that target younger users. He said that while disclosure requirements and affordability checks are in place, the seamless nature of digital borrowing can make it difficult for consumers to fully grasp the long-term implications.

“There is scope to improve safeguards around repeat borrowing, make cost structures more transparent, and strengthen affordability assessments,” Kumar said. He added that the Central Bank of the UAE has demonstrated a forward-looking approach by adapting regulations to keep pace with evolving financial products.

Kumar also warned that although digital lending has expanded access to credit for people new to the formal banking system, weak affordability checks can shift excessive risk onto borrowers. “When safeguards fail, the burden moves from financial institutions to individuals who often lack savings buffers and face employment-linked residency pressures,” he explained.

He emphasized that financial education is essential in addressing these challenges, particularly in a country with a young and diverse expatriate population. Borrowers must clearly understand repayment terms, fee structures, and the impact of defaults on credit bureau records before taking out instant loans. However, Kumar stressed that responsibility must be shared.

“Consumers need education, but lenders must design responsible products, regulators must enforce firm boundaries, and schools and universities should introduce practical financial literacy at an early stage,” he said.

Vijay Valecha, Chief Investment Officer at Century Financial, highlighted the structural mismatch between short repayment periods and irregular income patterns. He noted that many digital loans require repayment within weeks rather than months, leaving little margin for income delays.

“For students and gig workers, earnings are not always predictable, but loan repayments are fixed,” Valecha said. “Even a short delay in income can lead to missed payments, late fees, and the need to borrow again.”

Valecha cautioned that the consequences of missed repayments extend beyond immediate financial strain. As buy-now-pay-later (BNPL) and short-term lending data increasingly feed into credit bureau systems, a single default today could affect a borrower’s ability to secure larger loans in the future.

“Short-term convenience can have long-lasting effects,” he said. “A missed payment on a small digital loan could reduce access to home loans or car financing years down the line.”

Faris Ali, Managing Director at Jawab Economic & Management Consultants, addressed the regulatory side of digital lending. He acknowledged that the UAE has taken significant steps to bring digital lenders under formal oversight, including Central Bank requirements that providers be licensed or operate through approved financial institutions.

“These measures have improved consumer protection and transparency,” Ali said. “However, regulation alone cannot eliminate risk if loan products are built around frequent re-borrowing.”

He explained that digital lending supports financial inclusion when loans are occasional, affordable, and repayable from predictable income. But when business models rely on short tenures, elevated fees, and continuous refinancing, the burden falls disproportionately on those least equipped to manage it.

“Such structures effectively transfer financial risk onto individuals who lack the capacity to absorb shocks,” Ali said.

On the topic of financial education, Ali argued that awareness must be reinforced with built-in safeguards. “Education helps people recognise 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.”

Together, experts agree that while digital lending is reshaping access to credit in the UAE, its long-term success depends on responsible product design, robust oversight, and informed borrowers who fully understand the consequences of instant credit.