The Debt Panel: 'I was forced into a Dh380,000 loan to clear my abusive ex-husband's liabilities'
The single mother from Sharjah is now struggling to make the monthly repayments on a reduced salary
I borrowed Dh380,000 a few years ago to pay off my ex husband's mismanaged finances. At the time, my salary in the retail industry was Dh14,000. I topped up the loan in August from Dh218,000 to Dh272,000 to pay off some friends that helped me and to clear my credit cards. I was very proud to have my finances sorted but I am now in a helpless situation.
I had no choice in taking out the initial loan, because my ex-husband physically abused me when I refused. He used to work for a bank – leading a life that did not match his budget - and he used me to get the money. He returned to Sri Lanka in 2015 leaving me saddled with the debt. He used to pay Dh500 a month for the children but since leaving he pays nothing. I have now divorced him.
In January, my position at work was terminated. I continued to meet the loan’s monthly payments until March and finally found a new role as a retail store manager in April with a salary of Dh8,500. In the meantime, I wrote to the bank explaining my situation as I could not make the May payment.
The bank has called demanding I pay but I am a single mother with two secondary school children. My total minimum monthly expenses come to about Dh7,000; this includes Dh2,666 for rent, Dh1,400 for school fees, Dh530 for bus fees, Dh600 for utilities, Dh500 for my phone and Dh1,000 for food and clothing. This does not include all the extras that come with having teenage children.
I simply cannot repay the monthly loan amount of Dh6,879 and have asked for a restructure. In April I even told the bank to take my entire gratuity towards the loan, which they did very quickly.
The bank is offering to lengthen the tenor of the loan by 96 months – where I pay Dh2,200 for the first 24 months and Dh3,900 for the final 72 months. They are not reducing the interest rate – only lengthening the time it takes to repay. I feel this will trap me for the next few years and don’t feel I will be able to meet the repayments when they go up in two years.
Why will the bank not consider reducing the interest rather than simply stretching out the loan? Who can help in a situation like this? Should I consult the police or a lawyer? TS, Sharjah
Debt panellist 1: Shaker Zainal, head of retail banking at CBI
When your income decreases substantially, as a borrower acting in good faith you have done the right thing by discussing your situation openly with your bank and asking for a re-structure. It is also positive that your bank has been accommodative and offered a new payment plan.
It is better to move onto a lower monthly payment plan for the next 24 months, to give yourself more time to look for a higher income job.
Shaker Zainal, CBI
While every bank has its own credit policies, in general, banks tend not to consider interest waivers, unless loan payments become significantly overdue. In other words, from a bank’s perspective, the interest waiver is usually a last resort.
Assuming your salary is credited into an account at the same bank that provided the loan, the signed agreement gives the bank authority to freeze your account and automatically debit overdue loan payments from your salary. This is under certain circumstances and depends on the agreement's terms and conditions. According to the same agreement, at the time you utilised the loan, you also agreed on the interest rate; so there may not be sufficient grounds for you to challenge the interest rate now, as there is a legally binding contractual agreement between you and the bank.
Although the bank has no legal obligation to do so, you can discuss your situation with a more senior bank officer and request a more favourable payment plan, given your circumstances and good track record in respecting your debt repayments. However, whether or not to offer you a more favourable plan is at the bank’s discretion.
Other options include selling off any liquid assets you might have in your home country or in the UAE and passing at least some of the financial burden onto your former husband through legal or other means, particularly given his responsibility in the financial distress you are facing.
In any case, it is better to move onto a lower monthly payment plan for the next 24 months, to give yourself more time to look for a higher income job. The bank may even agree to extend this period, taking your good track record into consideration.
Debt panellist 2: Keren Bobker, an independent financial adviser with Holborn Assets
I am sorry to read your now ex-husband was a bully and is the main reason for your debts. A loan of Dh380,000 is a very large amount to borrow on an income of Dh14,000 and the sum exceeds UAE Central Bank guidelines of 20 times salary. Since your redundancy, it is clear you cannot meet your ongoing commitments on your lower salary.
While the bank has agreed to extend the term of the loan, it is under no obligation to reduce the interest rate. They could even argue you are now an increased risk, so should be charged a higher rate of interest to reflect this.
The interest rate a bank charges is not generally a police matter and certainly not in a case such as this where a borrower is behind on payments, the bank is charging their standard rate, and has agreed to reduce the ongoing payments. A lawyer is not going to make any difference to your case and would cost you money.
The increased loan term will mean more interest to pay over time but the bank has offered a way of reducing the costs right now. It at least gives you a lower monthly repayment and time to look for a job with a higher salary.
It is unfair your ex-husband is not contributing towards the upkeep of his children but do you have any other options? Are there family members that can assist until you can improve your income?
From a legal perspective, you are obliged to repay the money you borrowed, on the terms agreed, and failing to meet the reduced payments could have serious consequences, so it is important that you do what you can to maintain them.
Debt panellist 3: Rasheda Khatun Khan, founder of Design Your Life
Taking out a loan that is beyond your ability to repay, regardless of the reason, will bring you to this point. Your situation is extremely challenging, which can make it hard to solve. Nevertheless, we must adopt a "bigger-picture" approach when viewing any debt situation. The "band-aid" approach, on the other hand, of taking a loan to repay other debt will only put you into more debt.
It's time to take a long look at your current situation and downsize. Prioritise necessities and limit them. Move house, change schools, sell the car, sell other assets. Ask family for support. Consider relocating if you cannot make the numbers work here.
The bank is not obliged to offer you favourable terms or reduce your interest. A loan is a contractual agreement. You can certainly request a restructure based on your current situation and share with them what an affordable monthly commitment would be for you. You can also consult a lawyer or a debt management company, to help with negotiations. Be sure to clarify all the fees. Some law firms offer pro bono sessions for debt cases. Another reason to consult a lawyer would be to explore your ex-husband's financial obligations for your children.
Bringing down your monthly commitments should be your priority, as this is the root of the debt cycle.
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 firstname.lastname@example.org
Updated: June 4, 2019 10:29 AM