Dubai resident Devi experienced a significant increase in her loan amount after accepting a bank’s offer to restructure it, extending the Equated Monthly Instalment (EMI) to 17 years. She had initially taken out a Dh180,000 loan during the pandemic, which ultimately tripled to Dh530,400 due to extended repayment terms. While extending the loan tenure lowered her monthly payments, it also led to an increase in interest charges and overall costs.
Devi, an Indian expat in her late 30s, lost her job at a Dubai-based travel company during the height of the Covid-19 pandemic. Despite trying to make her monthly payments from her savings, she eventually had to return to her home country as she could not keep up with her bills. However, after receiving calls from collection agencies recommending the debt deferment scheme provided by the UAE Central Bank, she decided to put her EMI payments on hold for 12 months while she searched for a new job.
Upon returning to Dubai in 2022 and securing a new job with a significantly lower salary, Devi updated her employment status with the bank. This led to the bank offering her a restructured loan plan with an EMI almost half of what she used to pay when her salary was higher. However, the loan tenure was extended to 17 years, resulting in higher interest charges over time and a total payable amount of Dh530,400.
Extending loan tenure can lower monthly payments but also increase interest charges. For example, a Dh10,000 loan with a 10% annual interest payable in four years would cost Dh2,174 in interest, but if extended to 8 years, it would cost an additional Dh2,393 in interest. It is essential for borrowers to understand the terms and conditions of their loans and to read the fine print before accepting any agreements.
Atty Barney Almazar, a legal expert, emphasized the importance of financial institutions providing transparent and comprehensive explanations of loan terms to ensure clients understand the potential costs associated with their financial products. Almazar suggested that borrowers engage legal experts and gather evidence if faced with extended loan terms and hidden charges. He also recommended filing a formal complaint to the UAE Central Bank’s Consumer Protection Unit if necessary.
In the case of Devi’s loan restructuring, Almazar is assessing if the bank followed UAE Central Bank regulations. Devi has the option to file a formal complaint with evidence of the bank’s lack of transparency and any unfair practices. Legal remedies are available to rescind unconscionable repayment terms, and steps such as engaging a financial dispute specialist, gathering evidence, requesting detailed statements, identifying discrepancies, and challenging the bank’s claims can be taken to protect one’s rights. Ultimately, it is crucial for borrowers to be aware of their rights and seek legal assistance if needed to address any issues with loan restructuring and hidden charges.
