The Debt Panel: 'Can I ask my bank to waive the interest on a personal loan?

The Sharjah resident recently lost his job and does not want all of his end-of-service benefits to go towards paying down the loan

I need your support and guidance to help me settle a Dh450,000 personal loan I took out three years ago.

The term of the loan is four years, with monthly instalments of Dh10,703. In total, the loan comes to about Dh513,744 after factoring in the profit rate.

So far, I have paid 36 instalments totalling Dh385,000. There are only 12 equated monthly instalments pending, or a total of Dh128,500, which includes the remaining principal of about Dh65,000 and the profit rate of Dh63,500.

I am 54 years old and have recently lost my job; the company has provided me with a redundancy letter.

Is it possible to ask the bank to consider my situation and take the remaining principal amount from my gratuity and cancel the profit rate on humanitarian grounds?

I have to clear other dues that are pending in India and also need the money for further expenses, including leaving the UAE and finding another suitable job.

Will the bank consider my situation and give me some relief or will it deduct the whole amount from my gratuity? What do banks generally do in these types of situations? SM, Sharjah

Debt panellist 1: R Sivaram, executive vice president and head of retail banking products at Emirates NBD

I am sorry to hear about your job loss.

Firstly, I recommend that you keep your bank informed about your current circumstances and recent job loss and establish a proactive and continuous channel of communication with the concerned staff.

This will reassure the bank that you are taking your financial obligations seriously and show your commitment to repaying your debt.

In terms of your gratuity, you will need to refer to the terms and conditions of your loan agreement for more clarity on your rights and obligations in this situation.

Typically, loan agreements in the UAE include a clause that allows lenders to allocate gratuity payments towards debt repayments.

Once you have reviewed this, articulate to your bank your current financial obligations and request them to review what best can be done.

If you are comfortable with prepaying the full outstanding loan amount from your gratuity immediately, you would need to only make good the remaining principal amount without having to account for any profit rate-related payments, thus allowing you to use the additional funds against other expenses.

In case you are planning to stay on in the UAE and look for another job, you could also try coming to an agreement with your bank to pay a part of your loan by using a portion of your end-of-service benefits, but extend the period of the remaining amount due with a more favourable profit rate and a lower monthly instalment until you have secured new employment.

Finally, I recommend you try to keep costs and living expenses as low as possible while searching for a job. Consider also taking on a part-time or temporary job that will help to pay for your basic expenses.

I wish you all the best in arriving at a mutually agreeable solution with your bank, as well as finding new employment that can help you return to a stable financial footing quickly.

Debt panellist 2: Nathan McFarlane, founder of AskHelpWith.com

I do not believe you should be considering profit rates and principal amounts – the reality is that you agreed to pay the amount based on the terms and conditions of your loan.

However, banks are aware of the difficulties that many people are facing because of the Covid-19 pandemic and are willing to help wherever possible.

I recently had a conversation with a bank representative who said that many people in the UAE are currently having some form of financial difficulty because of the pandemic and it is affecting their credit scores.

The first thing you need to consider is which account your gratuity will be transferred to. In the event your gratuity lands in the bank with which your loan is provided, the entire amount will be frozen.

Typically, loan agreements in the UAE include a clause that allows lenders to allocate gratuity payments towards debt repayments

R Sivaram,
executive vice president and head of retail banking products at Emirates NBD

This may vary from bank to bank, so I suggest you speak to yours and find out its procedures.

You could ask the bank for a payment holiday under the Targeted Economic Support Scheme as you have proof of your redundancy. This should be a priority. Also ask the bank if it is possible to continue paying your loan on a monthly basis while you are looking for another role.

It is unlikely that the bank will freeze a portion of your gratuity and release the rest to you. I have very seldom seen banks be flexible purely on humanitarian grounds. I wish you the best of luck.

Debt panellist 3: Jaya Ratnani, managing partner at Freed Financial Services

You have done well to pay off most of your personal loan and your regular track record of payments will work in your favour when it comes to negotiating a debt settlement with your bank.

However, I would like to point out some discrepancies in your calculations. You have a reducing balance loan and your calculation for the remaining principal and interest seems to be incorrect. The full interest component is already recovered in the loan by the bank. Based on the numbers provided, your actual remaining principal will be Dh124,500 and interest Dh5,000 only.

Because it is a personal loan, it is secured against your salary and gratuity by the bank. Your employer will need to credit the gratuity amount in the same salary transfer account, which will be blocked by the bank.

For the release of your payment, you will need to provide documents of your new job. Each bank has a different process for the number of days they can hold the funds.

If you plan to leave the country and the end-of-service amount secures the total outstanding owed, the bank will draw it down with the funds available in full. If the amount does not secure the full outstanding owed, you can negotiate with the bank for the shortfall. Based on your situation, they can review your financials for a partial waiver.

Your situation is tough but it is imperative that you settle all your dues before leaving to avoid any legal implications or issues with collection agencies in India.

The non-payment will balloon the interest on the loan, which will become impossible to pay in the future. It will also reduce your chances of coming back to work in the UAE if you find any opportunity.

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]