The Debt Panel: 'Should I receive threats for missing one payment on my loan?'
The Filipina, whose debt has an interest rate of 39.99 per cent, says she failed to pay because of a family emergency
I have a loan with an annual interest rate of 39.99 per cent. I took the loan out last year and have 39 months left to pay on the 48-month tenure. I have been a good payer for almost a year, but I missed this month’s payment because of a family emergency back home in the Philippines where I had to pay for an MRI. The lender is now threatening me with dialogue such as, ‘you know what will happen and the consequence that you face, right?’ I have told them I will pay the amount next month but they are still threatening me. My monthly repayment is Dh2,026 and I have an outstanding balance of Dh43,191. I earn Dh4,500 working in administration in Dubai and my monthly expenses are Dh1,800 for food, Dh500 for remittances, Dh150 for utilities, Dh50 for transport, Dh200 for groceries and Dh500 for my wedding preparations. I have not been charged any late payment fees yet. I am planning to make up the payment at the start of next month when my salary comes in. Despite me telling them this, they are still threatening me and have even mentioned legal action if I do not pay up. What do you suggest? EE, Dubai
Debt panellist 1: Shaker Zainal, head of retail banking at CBI bank
When you only miss one monthly instalment on your personal loan, banks typically charge a late payment fee and then you have to pay the missed monthly instalment before the next due date or both instalments together on the next due date.
You should try to clear the overdue payment now and also ask the bank for a deferment of one month. This gives you one month’s payment holiday and you can carry on paying regularly from the next due date. You have established a good track record by regularly paying your previous instalments on time, and you have a job, so your bank is likely to accommodate your request.
You may also want to double check the correct outstanding amount to ensure your information is accurate, because in your message you have indicated that your monthly instalment amounts to Dh2,026 and when you multiply this by 48 months, the total amount would be Dh97,248. From this, if you subtract the nine payments that you have paid already (Dh18,234), then your total outstanding should be Dh79,014 and not Dh43,191 as you have stated.
I also note that you have stated an annual interest rate of 39.9 per cent for a personal loan, which is too high compared to the current market rates in the UAE, so you might want to double-check this information as well. Finally, you might need to cut down your expenses, as I noticed that the sum of your monthly expenses, excluding your monthly instalment, is Dh3,200. This leaves you with less than what is required to pay back your loan.
Debt panellist 2: Keren Bobker, an independent financial adviser with Holborn Assets
An interest rate of 39.99 per cent a year is shockingly high. I am aware that some fairly well-known lenders will apply an interest rate at this level, but in my view, this is excessive. Interest rates for personal loans vary depending on the specific circumstances of the individual and if someone is considered a higher risk, the rate will increase but this really is far too high.
Mainstream banks will follow up if a payment is missed but not generally in this manner. If you are being spoken to in this way, after missing just one payment, the lender is not acting appropriately and you can register a complaint again them, if they are aggressive or rude, with the Central Bank of the UAE. That said, it is still your responsibility to repay what you borrowed in a timely manner. You signed an agreement with this lender and you do not have the right to make repayments when you choose.
Your stated expenses and the loan repayment exceed your income so I am not surprised you have a problem. You have not said why you took on a loan with such a high rate of interest, though I assume you had previous financial difficulties. Your income is Dh4,500 but your outgoings are Dh5,226. Your loan repayments are within Central Bank limits at 45 per cent of total income but as your total outgoings are higher than your income you must cut back for this situation to be sustainable.
Depending on your credit record you may be able to refinance at a lower interest rate, which would reduce your expenses. Check your credit report with the Al Etihad Credit Bureau before investigating further; the cost varies between Dh60 and Dh150 plus VAT depending on the type of report you request.
If you are unable to refinance then cut back, with the marriage fund the obvious first choice. You cannot save for a wedding if you are building up personal debt. Once you cut out the marriage savings, you need to reduce your expenses by a further Dh226 each month. I appreciate this is tight but you cannot continue in a position where you need to pay out more than you earn. If you fail to make the loan repayments and default by three months, the lender can register a police case and that can lead to imprisonment in a worst-case scenario. Far better to tackle the situation now before the consequences become really serious.
Debt Panellist 3: Ambareen Musa, founder and chief executive of Souqalmal.com
Calls from bank-appointed collection agencies can be very stressful, especially given the intimidation tactics and borderline threats commonly used by many of these agents. However, you must stick to your side of the story and offer the most you can manage given your financial circumstances. If you're sure you will be able to make up for the missed instalment next month, you must bear late payment charges for the amount you skipped. Check how much these charges amount to, to ensure you are not in for a rude shock.
If it was only a matter of one month when your finances seemed tighter than usual, you could have enquired about getting a payment holiday from the lender. This is a penalty-free break in regular installments, usually not more than a two to three month tenure. This isn't the norm at most banks, but it's still worth checking.
However the missed installment is also a red flag signaling that you've taken on more debt than you can actually afford to repay. You're also finding it difficult to keep up with your repayments because of the incredibly high interest rate on your loan. An unsecured personal loan at an interest rate of almost 40 per cent seems like the absolute last resort in financial assistance. Is there any way you can settle this loan earlier? How about tapping into any old assets or savings, or even getting your close family and friends to help you out with an interest-free loan? The heavy interest will simply keep draining your savings for the remainder of your loan tenure, which is another three years.
You should also consider asking your employer for a raise or possibly switching jobs in the near future. Since the majority of personal loans in the UAE have a minimum monthly salary requirement starting from Dh5,000, an equivalent or higher salary could allow you to opt for a salary transfer personal loan at a significantly lower rate than what you are borrowing at currently.
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
Updated: August 21, 2018 04:30 PM