All you need to know about Buyout Loans
Buyout loans are forms of banking transactions wherein banks and financial institutions re-issue already sold loans to new customers. These loans are offered to new customers at discounts, at times, and it’s also possible for multiple loans to be combined into one package that will be sold to investors as securities.
The basic premise behind buyout loans is for the financial institution to not only get a compensation that will cover expenses while providing a marginal profit, but also for the investor or buyer to make healthy returns while repaying the loan in accordance with the original terms. In loan buyouts, the risk that comes with the loan/s will be transferred to the new investor, leaving him/her open to the risk of incurring losses should there be any default on the debtor’s part.
How do Buyout Loans impact investors?
The concept of loan buyouts is fairly common across several business settings. Be it car loans, mortgages, or even debt accumulated through credit card expenditure, it can be combined and made available to investors who would like to profit from the returns those debt instruments can earn in the future.
Most investors who take buyout loans tend to do so with the intention of creating an ongoing revenue stream so that the money spent on the loan will eventually be covered. Since buyout loans are usually sold at discounted prices in comparison with the actual remaining balance that the debtor owes when the buyout occurs, the returns of the new investor only increase over a period of time.
How do Buyout Loans benefit the financial institution?
Buyout loans offer advantages to the financial institution that sanctioned the original loan as lenders need not wait for the repayment of the loan in accordance with the terms so that the whole investment is recouped. Usually, buyout loans are offered to new investors at a price marginally below the loan’s face value and the estimated amount of interest still due when the purchase is being made. The financial institution can receive the amount invested in the loan by first recouping a small sum over the actual costs related to the loan before utilising those same funds for the underwriting of extra loans that generate extra revenue. However, the best benefit received by financial institutions in case of buyout loans is that once the loans are given out to new investors, the lender will not be at risk of default anymore.
Buyout loans have been growing in popularity over the past few years with car loans, commercial and private mortgages and other kinds of lending activity. Though debtors will still require to make monthly payments, they will be doing so to a different entity. Generally, the loan’s actual terms remain the same, and the debtor remains under obligation to pay the same interest rate and adhere to the same repayment schedule. The rights and responsibilities of the debtor also remain the same as initially contracted.
Banks Providing Buyout Loans
Listed below are the two most popular buyout loan options in UAE currently.
ADIB Buyout Loan
ADIB offers Buyout Loan in the UAE to reduce the burden of your already existing mortgage. Refinancing your home loan with ADIB will not only reduce your financial burden but it will also get you better finance rates and convenient payment tenures. The bank offers buyout loan amount up to AED 20 million for UAE nationals and AED 15 million for expats in UAE. It also provides ADIB paid property insurance for the full tenure.
NBAD Buyout Loan
NBAD offers Buyout Loans for both UAE nationals and expats in order to make home financing much easier for them. The bank offers rate of interest starting as low as 4.74% p.a. And flexible repayment terms up to 48 months. The bank offers loan amount up to AED 5 million for UAE nationals and AED 2 million for Expats in UAE.