The Debt Panel: 'My loan repayment is the same as my new salary. Can the bank reduce it?'

The Dubai resident lost his job in April and secured another role with a much lower monthly wage

Illustration by Mathew Kurian

I signed up for a Dh100,000 loan late last year to pay for my mother’s medical treatment as I had a good salary of Dh7,500 working as a safety officer in the construction industry.

The monthly repayments were Dh3,750 and I was paying on time. However, I lost my job in April and while I quickly secured a new role, my new salary is only Dh3,750 – the same as the loan repayment.

I received an end-of-service gratuity of about Dh30,000 from my last job but it was not enough to repay the debt.

I still owe Dh90,000 and I cannot afford to repay this. I pay Dh1,500 a month for rent and food and Dh600 for medicine for myself for a medical condition I have. I’m having to pay as my health card expired.

Can I ask the bank to reduce the instalment amount? I received an end-of-service gratuity of about Dh30,000 from my last job but it was not enough to repay the debt. No one else can help me repay the loan. I have a sister but she earns less than I do and has to support her two children through their education.

My only other debt is Dh2,000 that I’ve run up on a credit card in between the two jobs to cover living expenses in the UAE. My new job started this month.  

I am 50 and also support my wife and children in Kerala, who live with my mother, and a domestic helper who cares for my mother because she is paralysed. I haven't sent any money home for the past three months because of the job loss. I also could not access the gratuity as it went straight to the bank. I want to send some soon to help cover my mother's medical costs. What can I do? JN, Dubai

Debt panellist 1: Ambareen Musa, founder and chief executive of Souqalmal.com

It's commendable that you managed to secure another job shortly after losing your first, particularly in these challenging times. However, having your income reduced by 50 per cent must have been be a big financial setback. On top of that, having an outstanding loan does not make things any easier.

Now that your monthly loan instalment is exactly equal to your new salary, there is no way you can realistically keep repaying it at the original loan terms. Reach out to the bank to ask for your loan to be restructured in a way that you can continue repaying it without heading towards loan default.

Restructuring your debt may involve an extension of your loan tenure to allow for the monthly instalment amount to go down. On the flip side, you are likely to end up with a higher interest rate and will pay more interest because of the longer loan tenure. You need to provide the bank with your new employment details and proof of salary to kick start the process.

Ultimately, it is in the bank's interest to minimise the risk of loan default, which is why they should be willing to work out new repayment terms for you. However, if you have trouble dealing with the bank, you may need to engage a debt management company to negotiate on your behalf. The last resort, if all other negotiations with the bank fail, is to go down the insolvency route. The fairly new insolvency law introduced in the UAE can allow you to negotiate a settlement plan with your lender under the supervision of a court-appointed mediator.

On the expense side of things, you may have already made some big cutbacks due to the income reduction. You now need to take an even closer look at where your money is going, so you can preserve some cash during these difficult times. Explore all cost-cutting initiatives – temporary or long-lasting, big or small. These can help improve your current financial situation. If your wife or children – if they are at an employable age – can work back home to ease your financial burden, it would allow you to temporarily pause or reduce remittances while you pay down your debt in the UAE. Try to repay and get rid of your outstanding credit card debt first, while it is still a relatively small amount.

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

I advise you to proactively communicate your situation with your bank. Being employed, even if it is with a lower pay, definitely works in your favour. In your discussions with the bank, mention that you intend to make your loan and credit card repayments diligently and that you remain fully committed to clearing the outstanding dues.

Ask the bank to support a debt restructuring plan that will enable you to aggregate your personal loan and card liabilities into a new loan that can be repaid over an extended tenure of up to seven years. This will help in reducing your monthly instalment payments substantially and allow you to service the loan with your lower salary, especially since you have also cleared a good portion of your original loan amount with your end of service benefit payment. I also advise you to close your credit card to better manage your expenses.

Debt panellist 3: Steve Cronin, founder of DeadSimpleSaving.com

It is sad you have ended up in this situation not from greed but from trying to help your mother. Now you are in a position where you can barely help her at all. Many expatriates in the UAE have struggled when their parents are faced with large medical bills – this is where a cash buffer and any kind of health insurance goes a long way. A loan of Dh100,000 is a lot though, and that is the root of the problem. The size of the loan meant your monthly payment was 50 per cent of your income, leaving you highly vulnerable in the event of job loss.

You should definitely contact your bank and push to talk to someone at a managerial level who actually has some decision-making power. Clearly it is impossible to survive when the monthly payment is the same as your salary. They may be able to extend the term of the loan, so that your monthly payment is lower. The banks have also been instructed to be lenient and give payment holidays during the pandemic, so ask them to consider how they can help you.

Be careful with your credit card debt. That will balloon rapidly with its high interest rate, so it is really more of a priority to pay off than your loan. Meanwhile, do whatever you can to boost your income and reduce your expenses. Keep an eye out for other jobs, or see if there is extra work you can do for your company. You can get your health card renewed now that you have another job, and that should help reduce your expenses. See what you can do to reduce your other outgoings as well, though that will be less easy.

If you cannot find a way forward with the bank, go to the court and apply for insolvency. This will force the bank to work with you and an expert mediator to establish a plan that is workable for you.

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]