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Getting a loan is easy, but repaying it can be a whole other story. Banks in UAE go through a rigorous background check before approving a loan request. Several factors like the minimum income of the applicant, their credit score, the debt to burden ratio, and so on are taken into consideration before you can finally avail a personal loan in UAE. Once these factors are cross-checked, the applicant’s loan request is approved.
Sometimes, however, due to several different factors, a borrower finds it difficult to repay the loan or make timely payments. One could lose their job and therefore lose a steady income or there could be similar reasons for being unable to pay the personal loan in UAE. This is considered a loan default and the banks are forced to take strict actions against such defaulters.
The loan provided by the bank can either secured or unsecured. A secured loan is a form of loan that is secured against an asset by the bank or financial institution providing the loan. The asset is commonly known as “collateral.” Car loans and home loans usually fall under this category.
An unsecured loan on the other hand is when the banks provide the loan to the borrower without the need for collateral. Such loans are provided solely on the basis of the borrower’s monthly income and their credit score. The most common type of this type of loan is a personal loan in UAE.
Regardless of whether it is a secured loan or an unsecured loan, if the borrower fails to fulfil his payment requirements, the bank legally take actions against after giving some reminders. If it is a secured loan, the bank can cease the asset or collateral and if it is an unsecured loan, there can be other consequences.
Mentioned below are some of the actions that can be taken against you in case you lax with the repayment of your personal loan in UAE:
Call from the bank: First and foremost, the bank you have availed a personal loan from will send you reminders to follow through with your repayment schedule. It will be a polite reminder to resume the repayment of your loan. After a few reminder calls, the bank will then proceed to contact the debt collection agencies.
Debt-collection Agents: These agencies specialize in retrieving the loan amounts issued by the banks in case of any default. They will initially call followed by visiting your residence and office to collect the money. These agents are known to be rough in dealing with defaulters while trying to persuade them to repay the loan amount.
Cheque Clearing: When applying for a personal loan in UAE, the borrower has to provide signed blank cheques to the bank. These cheques serve as a security instrument to the lender in case of any loan default by the borrower. Despite constant persuasion, if you do not regularize your instalments to the bank, they will submit the previous cheques given by you for clearing. If however, the cheques are bounced, the bank has no option but to take the legal route and involve the police authorities into the matter.
Filing a Police Case: Once the cheques submitted by you bounce, the banks file a police report against you. Earlier if your cheques bounced, it was considered a criminal offense in UAE. However now, the current changes in the loan retrieval laws of UAE have made bouncing of the cheques a civil offense instead. So, under the new legislation, you will not be arrested. Nonetheless, you will be under the police radar who will keep an eye on you to make sure you do not flee the country. The loan holders are not legally allowed to leave the country until the loan is repaid in full.
Here are some of the ramifications of not repaying your personal loan in UAE:
Fees for Late Payment: In the scenario where the borrower does not repay the loan instalments even though it is beyond their repayment deadline, an additional fee called the late payment fee is combined with the EMI (Easy Monthly Instalments) of the personal loan in UAE. This late payment fee is added regardless of the type of loan- secured or unsecured loan.
Affects Credit Score: Missing out on your loan repayment or delaying your loan instalments will be forever reflected on your credit score, hampering any future attempts to secure a loan or avail a credit card. The credit score is like a report card that depicts the loan holder’s financial history, their monthly income, and thus, their ability to repay a loan. Skipping loan payment will drastically affect your credit score and it will be many years before you can rebuild a good credit score.
While packing your bags and trying to move to a new location to start afresh might seem like a lucrative option but it is an extremely risky option. Even if you somehow manage to leave the country, escaping the eyes of the law enforcement authorities, the debt collection agencies have offices and subsidiaries around the world and sooner or later you will be caught. Meanwhile, the amount of money you are required to pay for your personal loan in UAE will only increase owing to compound interest.
There are several different reasons for not being able to repay a loan like losing the job, high rates of interest, etc. If you find yourself in a similar situation, you need to make the move in the right direction in order to avoid falling down the slippery slope of legal troubles.
The following steps will help you to avoid legal penalties in case you miss out on some of your instalments for a personal loan in UAE or if you are under legal supervision for loan default:
Appoint a Legal Representative: Seek legal advice and appoint a lawyer to handle the complicated legal procedures and deal with the financial institution or bank.
Appoint a Representative: If you are outside the country, appoint a person to represent you in UAE. Give this person a power of attorney to handle the matter with the bank. The banks usually accept a simple letter of authorization for the same.
Negotiate a Settlement: The borrower can appeal to the bank to understand his circumstances and arrive at a settlement. Provide some form of assurance to the bank regarding the repayment of the loan or offer a guarantee to resume the loan instalments for your personal loan in UAE.
Debt Consolidation Loan: If you are unable to repay the loan, try applying for a debt consolidation loan. A debt consolidation loan is a type of personal loan in UAE to pay for an existing debt or bad credit, all at once. The borrower essentially applies for a new loan in order to pay off some other liability or debts, usually the unsecured loans. Several different debts are compiled into a single debt with better payoff terms. These terms are usually favourable for example, they might include a lower rate of interest, a much lower monthly payment, or in some cases, both.
Things To Remember If You are Unable to Repay a Personal Loan in UAE:
Life is full of ups and downs. You never know when you hit rock-bottom. But always try to plan ahead keeping in mind the worst-case scenario, especially when it comes to the matters of finance. Make sure to always be on time with your loan instalments and not take risky decisions when it comes to debt and you are sure to repay your loan without a hassle.