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Abu Dhabi, UAESunday 18 November 2018

The Debt Panel: 'Can I hand over the liability of my Dh80,000 loan to my brother?'

The Dubai resident borrowed the money on his sibling's behalf and now wants to leave the UAE

Illustration by The National 
Illustration by The National 

I have a personal loan in the UAE on which I owe Dh80,000, with three more years of payments to go. I borrowed the money to help my brother with his mobile accessories wholesale business in Dubai. It is a new venture that launched a year ago and no banks would lend to him, so I took the loan on in my name and now he repays the debt. I now have an opportunity to work in India, which I would like to take up for family and career growth reasons. As I borrowed the money for my brother and he is the one repaying the loan, can I ask the bank to accept him as a guarantor once I leave. Could I also, perhaps, give the bank a cheque from my brother as the guarantee. I work in the UAE as a retail manager earning Dh7,230 and have lived here for six years. The new opportunity in India will be a similar role paying Dh4,000. When I leave I am also due a gratuity payment of Dh35,000, which the bank can use to reduce the balance and then my brother can pay me back. So, can my brother continue to repay the loan if I have left the country? SO, Dubai

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

Although you can certainly speak to your bank about your situation, given that you are leaving the country, the bank is very likely to request that you repay your loan in full before departing. While your bank possesses a good understanding of your financial situation, they have a limited picture of your brother’s ability to make repayments as your loan guarantor. In their mind, there is no certainty that he will be able to meet the repayment schedule and, in the event of a default, it will be significantly more difficult and expensive to recover the remaining debt.

Your best option at this stage is for you and your brother to gather enough funds, including your gratuity payment, to repay the Dh80,000 you owe the bank. If necessary, your brother should take out his own separate personal loan, which can help you with this. Therefore, while it is worth speaking to your bank, you should plan for different contingencies.

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Debt panellist 2: Keren Bobker, an independent financial adviser with Holborn Assets

By law, the person who takes out a loan is the one liable for the repayments, no matter the reason for borrowing the money. The bank’s priority is simply that payments are made but these must come from you as the borrower. Check the terms and conditions of your loan agreement, as it is likely there is a condition that states the repayments must come from a salary account with the lender. Failing to do that can mean the bank can request full repayment.

For any person to take on the role of guarantor - which makes them fully legally liable for a debt if the borrower does not make the payments - they must go through an application process with a bank to establish they have the means to make payments in full. If your brother was not in a position to borrow money a year ago, has that situation now changed?

A bank is not obliged to accept a second borrower, or to permit someone else to make the repayments. If the loan was for your brother’s benefit then he should be the one taking legal responsibility for the money borrowed. On the assumption that his business is now trading successfully, he should approach his own bank to see if he can now borrow money to repay what is outstanding.

As the situation stands, if you leave the UAE your bank will be aware of this as your final salary payment will be marked as such. Your account will then be frozen and the end of service gratuity used to reduce the amount standing. If you then leave the country and miss any payments, you may be unable to re-enter the UAE and even arrested on arrival for debt.

You say your gratuity will be in the region of Dh 35,000 which would leave a net balance of about Dh45,000. The cleanest solution for all would be for your brother to borrow this amount to repay the balance of your liabilities and then you have nothing further to worry about in the UAE.

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Debt panellist 3: Ambareen Musa, founder and chief executive of Souqalmal.com

Banks in the UAE can suspend a borrower's loan term and claim immediate payment on a loan under specific circumstances. These include failure to pay three consecutive or six non-consecutive instalments, end of employment when they receive final salary and end of service benefits from the employer, and when the borrower leaves the UAE permanently. This also means that your bank account could be frozen until the debts have been repaid.

Though it is worth having a conversation with your bank about how best to deal with this situation, it is unlikely the bank will accept any form of guarantee from your brother. This is simply because the loan contract was signed with you, which makes you legally liable to repay the loan. Therefore, it may be best to settle this personal loan before you leave for good.

Since you are considering using your gratuity to partially settle the loan, is there any way your brother can apply for a personal loan in his name to gather the funds to settle the remaining loan? If this isn't possible, you and your brother could liquidate some of your savings or investments to help repay the debt. In case you're using your personal savings to settle the loan, you can have your brother repay you under a repayment arrangement that works for both of you.

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