Unpaid personal loan in UAE

By PolicyBazaar
  | Published: 19 December 2020 | Last Updated On: 02 February 2021

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Whenever a borrower is granted a personal loan, banks and other financial institutions make sure to collect cheques as a security against the amount of the loan. This is done in addition to the signed agreement for a personal loan that specifies the terms and conditions. 

An unpaid personal loan in UAE can have consequences. When an individual misses his personal loan EMIs causing them to be unable to clear their outstanding dues within the stipulated time period, they are considered to be defaulters. Defaulting on your scheduled repayments can have serious repercussions. 

Each bank has a different set of terms and conditions in regards to the non-payment or missing of the personal loan EMIs. Let us look at the ramifications of an unpaid personal loan in UAE 2021: 

Most financial institutions and banks classify the personal loan defaulters into two broad categories-

1. Minor Defaults:

The minor payment defaults are defined as those loan accounts whose loan non-payment is under the period of 90 days. Such borrowers who have minor defaults against their unpaid personal loan in UAE can recover fairly easily from the negative impact of this default on their credit score.

2. Major Defaults

Different institutions classify the major payment defaults as those cases where the borrower’s payments for the unpaid personal loan in UAE 2021 is beyond the period of 90 days. Most banks and financial institutions do not want to extend a loan to such individuals whose credit report depicts a major payment default. When an individual has payments pending for a period of more than 90 days, the loan amount is considered as a Non- Performing Asset (NPA).

Consequences of an unpaid personal loan in UAE:

Given below are the repercussions of missing personal loan EMI payments in the United Arab Emirates:

1. Affect on Credit score

A credit report keeps a record of all the financial transactions linked to a debt availed by an individual. This includes all the payment details like the amount and the date of EMIs that help determine one’s credit score. All the unpaid dues and the overdue payments are recorded as such, harming the credit score of a person. Even missing one payment can lead to a decline in the credit score. Therefore, an unpaid personal loan in UAE 2021 can ruin credit history, making it extremely difficult for a person to obtain future loans.

2. Impacting future borrowing

Every lender checks your credit score as well as your credit report to evaluate the risks involved in extending a loan to you. They also do so to understand how financially stable you are, every time you apply for a loan. Having a low credit score due to an unpaid personal loan in UAE makes the best personal loan providers hesitant about giving out a loan to you. Even if some of them do decide to make an exception, they might do so by lending you a smaller amount, that too at a higher rate of interest.

3. Debt Collection Agents

Sometimes banks and financial institutions send debt collection agents for loan recovery in case the default period of the unpaid personal loan in UAE 2021 has exceeded the period of 90 days. The banks issue a notice giving the borrower a chance to repay within 60 days or else the loan account will be tagged as an NPA. It is advisable to prevent matters from getting so out of hand as it can be extremely stressful.

4. Penalty Charges

Making late payments or the non-payment of EMIs can lead to the imposition of additional penalties and fees on the borrower. If the borrower makes the EMI payment after the due date or within the grace period, they will also have to bear an additional late payment fee. Delaying the payment further will cause them to be marked as a defaulter and they can be additionally charged on the unpaid personal loan in UAE. 

Ways to avoid loan defaults:

While it is best to avoid a loan default at all costs, there are some options that a borrower can consider if the situation does arise:

  1. Plan your finances efficiently
  2. In case you foresee the possibility of an unpaid personal loan in UAE 2021, request for a lower EMI
  3. Another preemptive method is to make part payments to ease your financial burden
  4. In case of loss of employment that causes one to default on their payments, request the bank for an EMI free period.
  5. You can apply for Personal loan Insurance to avoid emergency non-payment conditions 

The Bottom Line

Debts always carry the brunt of both responsibility and risk. As a result, it is important to evaluate the plan of action before borrowing. Stay disciplined with your Personal loan EMI payments as a way to maintain a healthy credit report. Taking these measures will ensure that your financial freedom remains intact!