People who struggle to repay personal loans or credit card debt in the UAE may face serious financial and legal issues.
A personal loan is usually covered by a loan agreement between the borrower and the bank. The agreement sets out how the loan must be repaid.
It can also give the bank certain rights if the borrower can no longer meet the agreed payments.
A lawyer has explained how the rules can affect borrowers who lose their jobs or face other financial problems.
The advice applies to personal loans covered by the personal loan agreement formats approved by the Central Bank of the UAE.
These formats are linked to Notice No. 3692/2012. They set out key terms for personal loan agreements between banks and borrowers.
A personal loan agreement may include a clause about the borrower’s salary and end of service benefits.
Under Article 2(1) of the approved loan agreement format, a borrower may be required to provide a letter from their employer.
The letter can require the employer to transfer the borrower’s monthly salary and end of service benefits to the bank during the loan period.
This means the bank may have an important role when a borrower leaves a job.
For a borrower who already has unpaid debt, the arrival of end of service benefits in the bank account may affect access to those funds.
The exact action will depend on the loan agreement and the applicable rules.
Losing a job can create a major problem for someone with an unpaid personal loan.
The approved loan agreement format also gives a bank rights in certain situations where it believes the borrower may not be able to meet the loan obligations.
Article 4(6) covers cases where the bank sees grounds that may lead to the borrower or a guarantor being unable to meet their duties.
In such a case, the loan may become due earlier.
This can mean that the remaining loan instalments, interest, fees and other costs become payable at once.
The agreement states that this may happen without a separate notice or court ruling, subject to the terms of the agreement and the law.
According to the legal advice, a bank may freeze the withdrawal facility on an account when end of service benefits are paid into an account held with the same bank.
This can happen when the borrower has an unpaid personal loan with that lender.
The purpose is to protect the bank’s right to recover money that is owed under the loan agreement.
However, borrowers should not assume that every debt case will have the same result.
The terms of the personal loan agreement are important. So are the facts of the case and the rules that apply at the time.
Credit card debt can create separate repayment problems.
A borrower who has both credit card bills and a personal loan should review each agreement carefully.
Missing payments can lead to further action by the lender. The possible steps can depend on the agreement, the amount owed and the borrower’s situation.
Anyone facing financial trouble should contact the bank as soon as possible. Early contact may help the borrower understand the outstanding amount and discuss possible repayment options.
Borrowers should also keep records of payments and all communication with the lender.
The legal advice highlights one key point. Losing a job does not remove a personal loan obligation.
Instead, it can trigger rights under the loan agreement. This may include action involving salary payments or end of service benefits.
The exact outcome depends on the loan terms and the law that applies to the case.
For people facing serious debt problems in the UAE, getting advice from a qualified lawyer can help them understand their rights and obligations before taking further action.
