The Debt Panel: 'How can I pay off my loans without a job?'

I lost my job in March this year and have a personal loan and car financing with a local bank. The personal loan is Dh129,000 ($35,125) and the monthly instalments are Dh4,000. The car loan was originally for Dh76,000. I took out both loans less than a year ago. Since losing my job, I have used my savings to pay both loan instalments each month to avoid any missed payments and a bad credit score . The bank has also frozen Dh80,000 of my pension, which I planned to put back into a retirement fund once I started working again. I was hoping to find a job soon but, unfortunately, I haven't found one yet, so I reached out to the bank to help me to reschedule my loans. At first, the bank told me that the Dh80,000 could not be paid against the loans and that I had to continue with the monthly instalments. I then made another request for the collection department to contact me and they told me that they would use the Dh80,000 against the loans and then reschedule them. But this solution does not help me as I cannot pay monthly instalments until I find a job. I also explained to them that I did not want to touch the money that was meant for my pension. They refused my request and said that there was nothing that could be done and I should borrow money from friends or family to cover what is owed. I don't want to have a bad credit score because I lost my job and can’t afford to make the payments at the moment. I also want to apply for a mortgage to buy a home in the future and I am worried about the long-term effect this will have on my credit score. I am trying to find the right way to do this. I want to know what my rights are and how I can go about solving this issue. Can you help me, please? FB, Dubai Taking on debt can be manageable if you have a steady salary but, as you have found, a loss of income can trigger numerous challenges. When you have a personal loan, you place your finances in the hands of the bank. Such a loan is unsecured by a specific asset such as a house or car — it is on you and your ability to generate income or pay from your savings. It sounds as if you have burnt through your savings, if you cannot make any monthly instalments. You do have a car, though, so you may be able to sell it. A classic trap is that new cars decrease in value in the first couple of years much faster than the loan balance. So, even if you sell the car, you may not receive Dh76,000 for it. If you can sell it for, say Dh60,000, then the bank has to agree to add the remaining Dh16,000 on to your personal loan, as the remainder becomes unsecured debt once the car has been sold. It is hard to see how you will be able to stop your pension money being used to pay off part of your personal loan. I am assuming that it is money you planned to put into a pension, rather than it actually being in a pension scheme. If it was, neither you nor the bank would be able to access it unless you are over pensionable age. If your personal loan was taken out over a three-year period, then you are paying about 7 per cent reducing rate (beware, not the flat rate, which tends to be lower). Seven per cent is what you might expect to make in the stock market over the long term, but that is an aggressive projection for a pension. So, you are likely better off using the Dh80,000 to pay down your debt anyway and then, once you get a job, start saving hard to replenish your pension money. There is very little you can do without a job to pay off this debt, other than rely on others for help (you can always offer them a lower interest rate) or sell any assets you have. Do whatever you can to find employment, even part-time. You can always change jobs once the debt is paid off. Non-payment of three consecutive loan instalments would be considered a default, which would indeed harm your credit rating for at least five years. Another avenue is to talk to a UAE charity for debt support. There are a number out there, such as Dirham Al Kair. Be careful that if you eventually secure a large mortgage and find yourself jobless again, you could, in theory, lose your house. Your current challenge is a warning not to take on more debt than you can afford. Don’t keep quiet about your problems out of embarrassment. Your friends and family can learn a valuable lesson from your situation, even though it is painful to be the one teaching them. I am so sorry you lost your job and find yourself in this situation but well done for keeping up with your monthly repayments all this time. This will help you in your negotiations with the bank. It is unfortunate that the bank has not been more helpful. Visit your bank's branch in person and ask to speak to your relationship manager. Bring evidence of your past payments and, if possible, bring proof of your attempts to find employment. Ask them to restructure your loan or possibly provide a repayment holiday while you continue your search for employment. I would reconsider using the pension money to pay your monthly instalments in the short term. This will protect your credit score, reduce your penalties and interest and reduce the pressure on your cash flow. You can focus on replenishing your pension fund when you start earning again. There are some options you can consider. If you sold your car, would it be enough to pay off your car loan? This would remove the burden of one loan. Do you have other assets you can sell and use the funds to service the loan until you find new employment? Are there other sources of income you can use? Consider applying for roles outside your usual job description to increase your chances of finding a new job. Do you have skills you can use to earn money part-time or freelancing while you search for full-time employment? I would also recommend analysing your monthly expenditure to ensure you are using what funds you do have most efficiently. Failure to repay the debt on time and in full when due will affect your credit rating. However, when you find a new job, you can work on repairing it by ensuring you pay your dues on time and in full every month. Over time, your credit score will improve again. 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 pf@thenational.ae

The Debt Panel: 'How can I pay off my loans without a job?'

The Dubai resident wants to protect her pension but the bank is insisting that it is used to pay down her debts