The quantity surveyor borrowed Dh270,000 to build a house in India and fears his settlement will be swallowed up by the loan
The Debt Panel: ' 'If I switch jobs, will I lose my gratuity to the bank?'
I took out a bank loan for Dh270,000 six months ago to build a new house in India. My monthly instalments are around Dh6,528. I work as a quantity surveyor in Dubai, earning Dh14,030 but I am thinking about changing job for a monthly salary of Dh28,000. Currently the outstanding balance on the loan is Dh224,962. With two month’s leave salary, a gratuity and last month’s salary, my final settlement will be around Dh45,000. If the company gives me that final settlement, I understand the bank will then immediately freeze my bank account and deduct this amount from my overall outstanding, in other words Dh230,000 minus Dh45,000, which will leave me with a revised outstanding amount of Dh185,000. Once that happens, should the bank revise my monthly instalment based on the revised outstanding amount? Or could I use that final settlement amount for my own personal use instead and still pay the same instalment until the end of the existing agreement? KT, Dubai
Debt Panellist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank
If you are confident you can secure a new job in which you will receive a near 100 per cent increase in salary, then you should certainly pursue this opportunity. Make sure to notify your bank of your change in employment, confirming that your salary will continue to be credited to the same account. You should also share your letter of employment or contract with your bank once you have received it. Based on this, you should be able to discuss the usage of your end of service benefits towards your loan.
Assuming you are not leaving the country and will still be employed in the UAE, this should not be a problem and your instalments would continue as before. While your schedule of repayments will remain the same, depending on your personal circumstances and current financing requirements, you should certainly consider putting a portion of your final settlement towards the balance of the loan.
Making an early lump repayment will enable you to make significant headway into the Dh225,000 you owe the bank, bringing forward the date in which you are debt free.
Debt panellist 2: Keren Bobker, an independent financial adviser with Holborn Assets
It is common for banks to freeze accounts when notified that someone is leaving a job. This is mainly to stop debts accruing when there may not be a future income to repay them but the issue of retaining a customer’s money is quite a contentious area. It is still common practice for banks to take a person’s final salary payment and end of service gratuity payment and apply this to reduce an outstanding debt - even if a person is shortly to start a job. For the bank, it ensures the customer will not miss any loan repayments.
I understand that in 2012 the UAE Central Bank issued a statement advising that no bank in UAE has the right to seize a customer's money unless they had defaulted on three successive loan instalments. This means that the bank should not use money paid to the current account to offset any debts and that it should remain in the account until the bank unfreezes the account.
This generally happens when they see a copy of a new residency visa or a salary payment is made from the new job. What should happen is that once the account is unfrozen, you will have access to your money and will continue as normal.
In practice many banks are going against the UAE Central Bank directive and taking money to reduce debt. If that happens you have two options: either to accept this and reschedule the remaining debts, or if you prefer to manage the situation yourself to make a formal complaint to the UAE Central Bank. The details to do so are on their website at www.centralbank.ae
Debt Panellist 3: Ambareen Musa, founder and chief executive of Souqalmal.com
Congratulations, that is a big jump in salary. This will make it so much easier for you to manage your debt commitment.
Considering that you have a loan with your primary bank, the bank will most likely freeze the funds in your account once the end of service benefits reflect in the account. But do not jump to the conclusion that the bank will automatically deduct this amount and adjust it towards the outstanding debt.
You mentioned that you are thinking about switching jobs, so with some time still in your hands, you must approach your bank to enquire about their policy with regard to dealing with change in the accountholder's employment status. The bank may temporarily freeze your account to carry out a check of your financial position and whether you have the resources to pay off your loan. Understanding the protocol involved will help you stay prepared for any action that the bank might take.
You should also request for information on how to unblock or unfreeze the bank account and the documentation required to do so - such as proof of your new employment and income, along with the processing time this will take.
In the meanwhile, you should also consider restructuring the terms of your loan repayment, if you feel you can manage to pay higher monthly installments towards your loan. Not only will this reduce the time to full repayment, but it will also help lower the total interest payable.
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 email@example.com