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Personal loans are ideal for managing your finances when it comes to dealing with unannounced expenses. They are available as both secured and unsecured loans and allow borrowers the flexibility in terms of choice to present collateral. With personal loans in UAE, one can quickly get the required funds for any personal need, be it a child's education, marriage, business investment, and so on.
At the same time, it is necessary to remember that keeping up with the regular monthly instalments for personal loans can become a daunting task for many, whether due to the high loan amount, short tenure, high interest, and so on.
Despite step-by-step financial planning, an individual may face a cash crunch and miss personal loan instalment(s) due to unforeseen circumstances like medical emergencies, job loss, high household expenses, etc.
This article will discuss the impact of defaulting on your personal loan repayment in UAE, types of loan defaults, steps to be followed to avoid loan defaults, and more.
Defaulting on a personal loan occurs when a borrower fails to pay back the debt as per the loan agreement for a certain period. Generally, defaulting on a personal loan can damage your credit score and adversely impact your overall financial health.
If you default on a personal loan, you may face consequences like penalties, difficulty in obtaining unsecured loans in future, high-interest rates, a drop in your credit score, and so much more. This is because defaults can alert other lending institutions that you are not a reliable and trustworthy borrower.
The leading lending institutions in the UAE classify loan payment defaults into two categories – major defaults and minor defaults. Let’s cover each of them and see how they differ from one another –
Given below are some of the repercussions of missing personal loan EMIs payments in the UAE –
Missing the due date of your loan repayment and failing to pay personal loan equated monthly instalments (EMIs) on time can lead to a depletion of your credit score by a few points. It is to be noted that payment history takes up to 35% weightage of the credit score calculation, meaning that missing even a single payment can damage your credit score.
Once you submit an application for a personal loan, credit card, or any other such instrument, the lending institution reviews the application and contacts the al etihad credit bureau to get your credit report and credit score. The two essential things to be reviewed in the report are your credit history and repayment patterns.
If your repayment pattern shows that your due payments were not made timely or missed, the lending institution will be hesitant about giving out a loan or credit card to you on favourable terms or even reject your application altogether.
Penalty charges can include late fees or higher interest rates for unpaid EMIs and are applied if the borrower makes the personal loan monthly payment after the due date or within the grace period. Nevertheless, some lending institution in the UAE offers a free grace period that waives the penalty charges.
In a few instances, lending institution may send their collecting agents to recuperate the loan amount. This is usually the case when the default period has crossed 90 days. Banks generally issue a notice within 60 days to give borrowers a chance to pay the loan amount, after which the borrower may be labelled as a 'Non-Performing Asset' (NPA).
Once the customer's personal loan file is moved to the collection departments of the bank, the collecting or recovery agents try to get in touch with the customer and make an effort to retrieve the dues. If this process goes in vain, the file is moved to the legal department of the lending institution.
Whether you are missing a personal loan payment or any credit card payment, the general practice is that the lending institution will file a case after three consecutive instalments are missed. Once a lender sends the notice to the borrower through a notary, the next step is to file a police case and civil case. In such a scenario, the police authorities call the borrower to the police station and initiate the necessary actions against the individual.
Here is a list of some methods that you can implement to avoid the scenario of personal loan defaults –
As a borrower, one of the things that you need to evaluate before obtaining a personal loan is the state of your own finances. You must plan out your sources of income, contingency plan, future cash flows, and so on. This can ensure that you have adequate emergency funds to overcome the chances of being a defaulter.
Personal loans are the most accessible forms of loans to assist in an emergency. Nevertheless, before obtaining a personal loan, you must have a comprehensive understanding of the intention of your loan.
You must assess all the possible alternatives and be aware of your financial objectives to make a well-informed decision here. The three things to consider here are the loan amount, purpose, and the available repayment options.
Suppose the debtor foresees the scenario wherein they might not be able to pay the instalments of the loan for upcoming months. In such a case, they can contact the lending institution, inform the personal loan lender about their prevailing financial circumstances, and request the lender to lower the EMI payments. This is usually done by extending the repayment period or converting it to a secured loan. However, it is to be noted that some lenders may not permit this option.
Loan deferment is the facility provided by lending institutions to borrowers to skip loan payments for a while. This option, however, is only applicable if it is pre-approved by the lender. Generally, most leading financial institutions offer loan deferment facility in the UAE on personal loans.
If you are facing a break in the income outflow, you should approach the lender and request a personal loan deferment. One of the defining features of personal loan deferment is that it does not impact the credit score.
Several lending institutions offer personal loans for financial assistance in UAE with multiple choices, straightforward processes, and quick approvals. You should ideally conduct research, evaluate them, and take the help of an insurance expert to pick the one that suits your pocket and requirements. As a starting point, you can compare basic parameters for various banks including the eligibility criteria, processing fees, penalty or late fees, tenure, down-payment terms, and so on.
Policybazaar UAE can also help you choose the best personal loan plan. We can save you from the hassle of looking around for the best financing product by bringing the best options from top lending institutions. You can easily navigate our website and access all the plans available in just a few clicks.
With all the information available, you can easily apply for a personal loan from our official website. If you are stuck somewhere in the process, unable to apply for the loan, or have some queries, you can always reach out to our customer support team and solve your problems in a few minutes.
After deciding on the lending institution, it is crucial to read the fine print of the loan document. You should familiarise yourself with the content of loan documents, which includes terms and conditions, how your finances shall be impacted as your circumstances change, and so on.
Being aware of these details can help you manage your personal loan and its repayment better. Consequently, it is advisable not to gloss over the loan document while signing.
A personal loan is an ideal tool to tackle all sorts of personal expenses. Whether it’s a wedding or an education, a personal loan can be used to finance all those tasks. Various lending institutions in the UAE offer personal loans to all Emiratis and expats under different terms and conditions,
However, before obtaining a personal loan, it is necessary to understand your finances and map out a strategy for paying the personal loan monthly instalments. Missing monthly instalments can lead to severe consequences, including damage to credit score, poor creditworthiness for future borrowings, imposition of penalties, legal implications, and so on.
It is advisable to compute your personal loan monthly instalments before starting the application process. For this, you can use the personal loan calculator available on our website or any of the top lending institutions' official websites and get the monthly EMIs on personal loans aligning with your needs and budget.
Adhering to the payment schedules by paying personal loan instalments on time can inculcate responsible borrowing and help you build a healthy credit score in the UAE. This can be beneficial for your loan repayment as well as future prospects with respect to applications for credit cards, loans, and more.