“I missed a loan payment and my security check was refused”
In 2018, I took out a personal loan of 25,000 Dh from a finance company. At the time, I was in financial difficulty and it was the easiest way to get a loan rather than asking a bank.
This is a four-year loan that expires on June 1, 2022 and whose monthly payments are Dh1,217.
Paying off the loan is getting harder and harder for me and I have missed a few payments in the past. I was able to pay my deposit last month, but this month I missed it. Since then, I have received a message indicating that a check for Dh 35,000 had been presented in my name on the account and it was bounced.
When I contacted the finance company to ask them what the outstanding loan amount was, they told me it was Dh26,000 – this despite the loan being repaid for almost 3.5 years and an initial loan of only Dh 25,000.
How can they present a check for more than the amount owed? I’ve only been in default once recently and thought you must have missed three consecutive payments before something like this could happen. They also offer me a settlement amount of 15,000 Dh. If I can pay it in full, they said they would close the loan for me.
I don’t have the money to pay Dh15,000 to close the loan. Can you advise me on what to do? KC, Dubai
Debt Panelist 1: R Sivaram, Executive Vice President and Head of Retail Banking Products at Emirates NBD
It is unfortunate that you encountered financial hardship resulting in irregular monthly repayments which caused the finance company to decide to pay off the debt.
As a first step, ask the company to provide you with a detailed statement of your loan repayments, along with a breakdown of the current outstanding debt which has been broken down by loan principal amount, accrued interest, and accrued charges.
Any delay in payment would have resulted in interest and possibly penalties, which would be added to the unpaid amount.
Based on the above, you should have a discussion with the manager of the relevant finance company and detail the difficulties you faced and confirm your intention to pay the outstanding amount and close the debt as soon as possible.
It’s worth asking if you can pay the settlement amount in a few installments to give you time to organize the funds. You can also explore put options on any assets you may have, here or at home, to see if you can raise additional funds or if you can get help from family and friends. .
You must then provide the finance company with a proposed plan to repay the proposed settlement amount.
I wish you good luck in putting together and agreeing on a mutually acceptable plan. I hope you can bring this matter to a close in the coming months.
Panelist on Debt 2: Nathan McFarlane, Founder of AskHelpWith.com
As you have probably realized by now, the interest rates on loans from some finance companies are much higher than those from most commercial banks.
Chances are, the interest rate you have is more like a credit card than a loan, which means you end up having to pay back a lot more than a typical loan.
Often times, debt collection teams at finance companies will send SMS, emails, or even WhatsApp messages to the customer that they are rejecting a security check if you’ve missed one or two loan payments.
As always, it is highly recommended that you stay in touch with the finance company to avoid any unnecessary problems.
If you are worried about a bad check, you can check the Dubai Police website under âCriminal State Financial Affairsâ.
This service allows members of the public to learn about financial cases that may have been filed against them in Dubai and also includes information on whether or not there is a travel ban against you. It is a free service and you will need your Emirates ID to register your request.
Banks and financial institutions will often try to pay off debts in one installment. This is an ideal situation for them because they believe that you will not complete the term of your loan because you are already in default.
I would return to the financial institution and negotiate terms that suit your particular situation. You may not be able to pay for several months due to your financial difficulties.
However, it’s important that you are honest, transparent, and continue to show your good intentions to pay off your debt – and a solution will come over time.
Panelist on Debt 3: Jaya Ratnani, Managing Partner at Freed Financial Services
Your situation is indeed very unfortunate. You have done well to honor most of your monthly commitments. I understand that it can be frustrating to know that despite paying so much, the amount owed is still close to the original amount borrowed.
Unfortunately, this is how the economics of a declining balance loan works. The majority of your payments, especially those made at the start of the loan, have been paid in interest.
Plus, if you’ve missed a few payments, each missed payment comes with a steep penalty fee.
If there are deferrals or payment holidays, additional interest, called compound interest, can add up quickly. Due to the above, the loan amount has not dropped significantly.
The security check provided at the start of the loan includes the initial amount borrowed plus future interest. In the event of default, the bank will use the security check to take legal action.
However, at the time of payment, the bank can only recover the amount owed to it according to the current outstanding amount, which in your case is 26,000 Dh.
Usually, a security check is presented in the event of default of three consecutive payments. However, a bank or finance company can take action earlier if it considers the risk of default to be high.
Poor repayment history, lack of communication with the bank, and current employment status are some of the factors that can sound the alarm bells for lenders.
If the finance company has offered a settlement of Dh15,000, you should close it by borrowing the funds if possible. The finance company offered a good discount, and the loan settlement will help prevent more interest from accumulating.
Alternatively, you can meet with the financial institution and explain your current situation with a view to restructuring the monthly payments to a lower amount by reducing the interest rate and extending the tenure.
The Debt Panel is a weekly column designed to help readers tackle their debts more effectively. If you have a question for the panel, write to [email protected]
Updated: November 10, 2021 5:00 a.m.