The Debt Panel: ‘How can I convince my bank to restructure my loan?’

I have been in the UAE for five years and applied for a loan of Dh350,000 in 2015 to help my mother and brother because of medical issues, to settle a bad debt and buy a car for work. I was having problems keeping up with the repayments as I was also sending money home to pay for my mortgage and support my four children and two grandchildren. So I bought out the original loan four times with two different banks to take advantage of the 90-day payment holiday. The last time I did this was six months ago, and took a loan of Dh455,000, which has a tenure of four years.

My salary is Dh17,700 per month, but the bank has taken into account my annual accommodation allowance of Dh90,000 a year to calculate my equated monthly instalments (EMI). This means that I am paying Dh10,900 a month towards the loan, rather than Dh8,800 under the Central Bank’s Debt Burden Ratio if my housing allowance is not included in my salary. I also have two credit cards with outstanding amounts of Dh30,000 and Dh20,000 – I am only able to afford to pay the minimum amount towards these.

To supplement my income, I had a second job but lost it due to Covid-19 and am now finding it very difficult to keep up my payments. After paying the loan and credit cards every month, I also send Dh6,000 home to pay the mortgage, college fees and other living expenses for my family, who are not working because of Covid-19. However, I have only been able to send Dh2,000 home since the pandemic began and have fallen behind on my mortgage payments and daughter’s college fees. I fear that we will lose the house and my family will not have anywhere to live.

I have asked the bank to restructure my loan but they are unwilling to do this because my full-time salary has not been affected by the coronavirus. My biggest mistake was allowing the bank to add my housing allowance to my salary.

I am 50 years old and my health is suffering from the stress. I have high blood pressure, asthma and anxiety and am extremely worried about missing payments. Can the Central Bank of the UAE intervene on my behalf to convince the bank to restructure my loan and reduce my monthly payments so that I can eventually return home to my family?  PH, Abu Dhabi

Debt panellist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank

The current economic challenges have increased financial pressure on a large number of people. During these difficult times, we urge you to prioritise your health, ensure that you remain employed and maintain optimism that you will find a sustainable solution to your current predicament. There is a lot being done to protect vulnerable individuals given these unprecedented circumstances, and most banks have implemented measures to support customers who are struggling due to changes in their income.

As a first step, it is highly recommended that you communicate with your lenders about your situation. Keeping them informed demonstrates that you are taking responsibility to meet your financial obligations.

You should request that your bank offers you a postponement on your repayments on the basis of the ongoing TESS programme, whereby customers who provide evidence of being impacted by the repercussions of Covid-19 can be offered some financial relief. In addition, you should continue to pressure the bank to consolidate your current loan and two cards into a new facility with a longer tenure and lower financing rates. This will provide you with breathing space. Finally, consider contacting your bank in your home country to request relief on your mortgage payments.

If your UAE lenders remain unresponsive to your renegotiation attempts, you can submit an application to the Consumer Protection Department at the Central Bank of the UAE, which will arbitrate on your case.

Given that you have lost your second source of income, try your best to reduce your spending as much as possible. Living with significant debt can certainly be distressing, therefore, if you have any friends or family who may be able to support you, now is the time to also contact them.

Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com

Your loan instalment is a function of your loan amount, repayment tenure and interest rate. As a borrower, the goal shouldn't be to get as big a loan as you can qualify for. You must look at your individual financial circumstances to start with, such as the other financial obligations you have, how long you can afford to be tied up repaying the loan and so on.

Even opting for a buyout loan can be risky if you're already overextended financially. The loan buyouts in your case not only increased your loan repayment tenure, but also gave you access to additional funds by increasing your original loan amount. And since the primary attraction for you was the 90-day payment holiday, chances are you didn't compare your options carefully to go with the lowest interest rate one either.

Now that you're stuck with a huge outstanding loan amount and are swimming in dangerous waters with outstanding debt on two credit cards, it is time to get your (financial) ducks in a row. There's no point raising this issue with the Central Bank of the UAE since the bank isn't really at fault here – most banks take into consideration the borrower's total monthly income inclusive of housing allowance, especially when it is credited as part of the monthly salary. Get in touch with your primary lender again, and explain to them how you're struggling to repay your current instalments. If you don't get anywhere with the restructuring request, you could speak to a licensed debt management company to negotiate with the bank on your behalf.

Since the loan repayments have become a considerable financial burden for you, you should also look into liquidating some of your savings or assets back home to partially repay the lender. This may become necessary if you're unable to negotiate more relaxed repayment terms on the current loan. Your savings can also help you repay and get rid of your outstanding credit card debt, which can quickly multiply if it's left unpaid.

Ultimately, you still have your main source of income intact, so that's a big positive. But it is unrealistic to rely on this one source to manage your entire family's financial needs from children to grandchildren. Be honest with your family members about the tremendous financial pressure you're facing. Your family must all come together to find ways to share some of the financial responsibility with you, be it through part-time work or home-based businesses.

Debt panellist 3: Steve Cronin, founder of DeadSimpleSaving.com

You have been funding your life with debt for many years now and there were some clear red flags all along. You have had a mortgage all along in your home country and you have had to work two jobs to support everything. It is almost inevitable that in a downturn everything would collapse.

The bank is entitled to use your total income for your Debt Burden Ratio calculation. What they may not have known about is your mortgage back home, which is a big additional pressure on your finances. If your housing allowance is structured so that you have to use it directly on rent, then you may be able to argue against their calculation, but for most people you can spend that allowance on whatever you want.

The Central Bank has instructed banks to be lenient in these difficult times, such as offering more payment holidays. So you should maintain communication with your bank and push to talk to a more senior person with actual decision-making authority. Ideally, you should aim for a consolidation loan that will wrap in your credit card debt. That debt is actually more dangerous than your loan, as it will grow much faster if you are only paying off the minimum.

Talk to other banks as well, given you have quite a reasonable salary. They may be willing to take on all your UAE debts if you move your salary to them, as well as giving you a better rate and/or a longer term for the loan beyond four years. You may also want to talk to your mortgage company back home to see if they will grant you a payment holiday or adjust your loan. You may need to consider selling your home and renting accommodation – this will be difficult during the pandemic but it may be the only way to free up some money, reduce your actual debt burden and get you through the next year.

The Central Bank will not intervene on your behalf, but if things get really bad, then you can approach the courts and apply for the insolvency process. Your bank will then be forced to mediate with you and an expert adviser. However, this should be seen as a last resort.

Your family also needs to rally round and you all need to get creative about boosting your overall income and reducing your overall expenses. You should keep searching for additional work and so should your four children. This may be with colleagues, neighbours or even online – there are plenty of sites such as fiverr or Upwork where you can earn some money for specific skills or admin tasks. Making difficult decisions such as selling the house or taking your daughter out of college for a year may be painful and embarrassing, but if they stabilise you and help your health, then they will be worth it. Get through this together.

The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to pf@thenational.ae

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