Borrowers struggling with personal loan or credit card repayments in the UAE could face financial and legal consequences if they default on their obligations. In some cases, banks may also be able to use end-of-service benefits to recover outstanding loan amounts, depending on the terms of the loan agreement.
Under UAE banking rules, personal loans are governed by agreements between lenders and borrowers that set out repayment obligations, guarantees and other conditions.
What happens when a borrower defaults?
A personal loan agreement may require the borrower’s salary and end-of-service benefits to be transferred to the bank that provided the loan.
Under the approved personal loan agreement framework, borrowers may be required to provide their employer with a letter authorising the transfer of their salary and end-of-service benefits to the lending bank during the loan period.
This arrangement can give the lender additional security if the borrower is unable to meet repayments.
Can a bank claim your end-of-service benefits?
The answer may depend on the terms of the individual loan agreement.
If a borrower loses their job or faces another situation that could affect their ability to repay the loan, the bank may have contractual rights to demand repayment of the outstanding balance.
In certain circumstances, the loan agreement can allow all remaining instalments, interest, fees and other expenses to become immediately payable if the bank determines that the borrower may be unable to meet their obligations.
What happens to gratuity after job termination?
If employment is terminated and end-of-service benefits are subsequently credited to the bank account held with the lender, the bank may restrict withdrawals from that account to recover outstanding loan liabilities, subject to the applicable agreement and UAE law.
This means borrowers with outstanding personal loans should not assume that their gratuity will automatically remain freely accessible after leaving employment.
What should borrowers do?
Anyone experiencing difficulty repaying a personal loan or credit card debt should communicate with the lender as early as possible. Depending on the circumstances, borrowers may be able to discuss repayment arrangements or other solutions with their bank.
Because the consequences can vary according to the loan agreement, the borrower’s circumstances and applicable UAE regulations, professional legal advice may be appropriate before taking action.
Dubai Herald advises readers to obtain independent legal advice for their specific circumstances. This article is for general information and should not be treated as legal advice.
