The Debt Panel: 'I want my bank to waive the interest on the outstanding balance of my loan'

The Dubai resident wants to keep her end-of-service gratuity as a financial buffer as she looks for another job

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I have been made redundant because of the Covid-19 pandemic and will be finishing my job in December.

I am worried about paying the instalments on a bank loan that I took out in 2017. The original amount was Dh255,000 with interest of 8.25 per cent. My monthly instalments are Dh6,229.40 and I have already paid off Dh174,000 of the loan amount.

I have not yet received my final salary and end-of-service gratuity, but it is estimated to be about Dh75,000, which isn’t enough to pay out the loan.

My bank has already allowed me to defer monthly payments on the loan until the end of December. However, is it possible to ask the bank to waive the interest owing on the loan and allow me to pay the principal amount under the Central Bank of the UAE’s Targeted Economic Support Scheme (Tess)?

If not, can the bank force me to pay the rest of the loan because my end-of-service benefits are not enough to settle the remaining amount owed?

I plan to stay in the UAE and look for another job, but will need my end-of-service benefits for living expenses in order to do this. JN, Dubai

Debt panellist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank

I am sorry to hear about your job loss. Unfortunately, the pandemic continues to have an impact on the economy, leaving many individuals troubled with unanticipated financial burdens.

Firstly, it is highly recommended that you keep your bank informed about your current circumstances and recent job loss. In addition, it would be helpful to provide documentation from your employer stating that you were let go due to circumstances pertaining to Covid-19.

Establishing a proactive and continuous communication with your bank demonstrates your commitment to repaying your debt and reassures the bank that you are taking your financial obligations seriously.

Recently, the UAE Central Bank extended the Tess scheme to June 2021 to ensure continuation of financial support while allowing individuals and businesses to recover from the economic impact of Covid-19.

It is unlikely that your bank will waive any debt owed because you are unable to pay it immediately. More likely, they'll continue to let the interest accrue

Under the Tess programme, banks are encouraged to extend support to their customers by payment deferrals, repayment holidays and debt restructuring solutions. I encourage you to speak to your bank and request a debt restructuring plan that will extend your loan term, reduce your financing rates, or waive certain fees and penalties.

In terms of your end-of-service 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 include a clause that allows lenders to allocate end-of-service gratuity payments towards debt repayments. This is done as a safety measure for the lender, ensuring that the borrower will not default.

During this challenging time, I highly recommend that you decrease your spending as much as possible through tight budgeting, raising funds by selling assets, or even asking family for financial assistance. I encourage you to remain optimistic and wish you luck with your job hunt.

Debt panellist 2: Stuart Ritchie, director of wealth advice at AES

The UAE Central Bank announced in November that it was extending the Tess scheme until June 30, 2021. Under the terms of the scheme, banks are expected to postpone the payments of interest and/or principal of loans for customers like yourself.

Your question suggests that your bank has already allowed you to defer your loan payments until December under the terms of Tess.

If this is the case, you could come to an agreement with your lender that you make a contribution towards your debt using a portion of your-end-of-service gratuity, but extend the period you are deferring regular monthly payments until you have secured employment.

This may satisfy the bank that you’re committed to paying the debt, while giving you a buffer to use in the intervening period.

The Central Bank did, however, make it clear that any interest accrued during the deferment period on the principal amount will be owed by the customer and paid back on a mutually agreed timeframe.

It is unlikely that your bank will waive any debt owed because you are unable to pay it immediately. More likely, they’ll continue to let the interest accrue. Please bear this in mind, as the amount you owe will continue to grow the longer you do not make repayments. Given you have paid off a significant amount of your loan so far, deferring repayments unnecessarily will only serve to delay you from clearing the full amount sooner and being debt-free.

Debt panellist 3: Ambareen Musa, founder and chief executive of

You've already paid off the majority of your loan, which leaves an outstanding loan amount of Dh81,000 owed to the bank. Understandably, you want to retain a portion of your gratuity to survive in the UAE until you are able to find a new source of income.

However, the decision to use your gratuity and end-of-service benefits as you see fit may not be in your hands. Banks in the UAE usually add a clause in personal loan contracts that allows them to set off the customer's end-of-service benefits towards the outstanding loan amount. This would normally include your final salary payment, gratuity entitlement, severance package, pay in lieu of notice period, as well as unused leave.

Your best bet would be to settle and close the loan instead of letting it linger as an overdue liability. The first option would be to reach out to the bank and try to negotiate a settlement. You could request an interest waiver, which may bring down your outstanding loan amount and make it possible for you to settle it with your gratuity payment alone.

The other option is to tap into your savings, take some money out of your investments or ask family members to help you with a small interest-free loan to settle the bank loan and also leave you with some extra cash to help tide you over until you find a new job.

You will have to keep your costs and living expenses very low to continue living in the UAE while searching for a job. In the meantime, it may be wise to consider taking on a part-time or temporary job that will help pay for your basic expenses.

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