The Debt Panel: 'Can I pay off my personal loan from India?'

The Dubai resident borrowed Dh106,000 to help a friend but is now planning to move back home to set up a business

Steven Castelluccia / The National

In 2020, I took out a four-year personal loan of Dh106,000 to help a friend, who is paying me back with interest. I have not missed any payments over the past year and the current amount owed is about Dh80,000.

I plan to leave the UAE in September and return to India to set up a business with my parents. My sister also lives and works in the UAE and I plan to transfer the loan instalment to her every month to continue the repayments.

Cash flow is not a problem and my plan is to continue with the loan repayments until it is paid off.

However, before I leave the UAE, is there anything I need to arrange with the bank to continue paying the loan in this way? I am worried there might be an issue and the bank could call in the entire loan before I return home.

I am expecting to receive about Dh20,000 as my gratuity and want to put that towards the loan to pay it off faster. Is it legally possible to pay off a debt in the UAE while living in another country? I would appreciate any advice you can give me. DR, Dubai

Debt panellist 1: Steve Cronin, founder of DeadSimpleSaving.com

This friendship had better be worth it because you have considerably restricted your flexibility in terms of finances, employment and location. What if you needed a loan for yourself? What if you lost your job, as so many others have during the pandemic? If your friend stops paying you back, you could lose your money – and your friend.

I appreciate your generosity in helping your friend and I do hope it works out in your case, but I would strongly advise other readers against taking on similar arrangements as the majority of them end in tears and regret.

In theory, you are able to leave the country and continue making payments from overseas as long as the bank agrees to this. They also have the right to call in the full amount of the loan before you leave and take your full gratuity as partial payment of your debt balance.

A good course of action is to draw up a plan showing how you will be able to comfortably continue paying the instalments while not in the country, then discuss this in person with your bank. Some banks are more flexible than others.

However, in your favour is the fact that you have a good track record, have not missed any payments and are planning to use your gratuity to reduce the outstanding debt. Check your credit score with the Al Etihad Credit Bureau and gather statements from your home country that demonstrate your ability to pay from abroad. As you are setting up a business, you may not have a regular salary, so you will need to be convincing.

There may be a loan restructuring or early repayment charge. The bank may also increase the interest rate they are charging you as they are taking on extra risk when you relocate home. They may request that your sister becomes a guarantor of the loan but that puts her in a position of responsibility and personal risk if you cannot make payments. It is best avoided.

Make sure you talk to the bank before your final salary is paid. The final salary and gratuity payment will be flagged automatically by the bank and they may freeze your account, as well as demand full repayment if you have not communicated with them.

If possible, a better solution is to use savings from you, your sister, your parents and, even better, the person who owes you the money to close out the loan. Then you will not end up with a potentially complicated exit from Dubai.

Debt panellist 2: R Sivaram, executive vice president and head of retail banking products at Emirates NBD

I am glad you are being conscientious and proactive about settling your outstanding debts before you leave the country.

It may be difficult to move the monthly instalment transfer of your current loan to your sister’s account. However, given that she works in the UAE, it may be worthwhile exploring if she can apply for a new loan to settle the outstanding amount owed.

As you suggested, you could then transfer money to her to cover the monthly instalments. If your sister is unable to borrow this amount, you could explain your situation to the bank and intention to settle the debt. Request them to continue to debit your account to recover the instalments even after leaving the country.

If paying off the loan is not possible, I would suggest paying off as much as you can while you are still in Dubai

Carol Glynn,
found of Conscious Finance Coaching

Because you are being proactive about settling your debt and also partially settling the outstanding amount through your end-of-service benefits, the bank may accommodate your request.

I am confident that you will arrive at an agreeable payment plan with the bank as you are being honest and have a healthy repayment history. I wish you the best of luck in your new endeavour.

Debt panellist 3: Carol Glynn, founder of Conscious Finance Coaching

What a kind gesture you have done for your friend. It can be risky to take out a loan and pass the proceeds to someone else, so I am glad your friend is honouring their part and it is working for both of you.

As you are now leaving the UAE, your circumstances have changed. The best thing to do would be to clear the loan before you leave. It is the only way to protect yourself from any issues, stress and headaches that leaving the UAE with debt can potentially cause.

Can your friend now take a loan in their own name and pass the proceeds to you to clear it before you leave? This would make your move much more straightforward. It would also remove the risk of your friend defaulting on you, leaving you with the liability without the asset.

If paying off the loan is not possible, I would suggest paying off as much as you can while you are still in Dubai. Each bank will have a different approach to this kind of situation, so it is difficult to know exactly how they will react to your plans to leave the country.

Speak to your bank before you leave your current role. Once your gratuity is paid, they will lock your account until you can provide a new visa and salary certificate. It is best to speak to them before this happens to ensure the process is managed smoothly. Under normal circumstances, you will not have access to your funds until you provide the new UAE visa and proof of salary the bank requires to unlock it.

Explain to them that you will continue to pay the loan from your home country and request a list of documents they require to prevent them from calling in the entire loan. They will probably request evidence of your ability to pay the instalments, such as a salary certificate or income statement.

Be prepared for them to not approve your request and demand that the loan is paid in full before you leave. It is also important to read the terms and conditions of the loan before you meet the bank. There will most likely be a clause discussing your and the bank's rights and obligations should you no longer have employment in the UAE.

However, on the positive side, the bank could be flexible as you have never missed a payment. It will also help if you have no other debts and a good credit score.

The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to [e-mail]