A Dubai resident was taken aback when her Dh180,000 loan, taken out during the pandemic, ballooned to Dh530,400 after she accepted the bank's offer to restructure her loan, extending the Equated Monthly Instalment (EMI) to 17 years. While extending the loan tenure reduces the monthly payment, it also stretches the repayment period, leading to higher interest and additional charges.
Devi, an Indian expat in her late 30s who preferred anonymity, was a former manager at a Dubai-based travel company. She was earning a monthly salary of Dh18,000 until she lost her job at the peak of the pandemic. Devi tried to pay her EMIs from her savings while she still had 44 monthly instalments on her Dh180,000 loan. However, with no income, she struggled to keep up with her bills in Dubai and decided to return to her home country.
Shortly after, she started receiving calls from collection agencies suggesting she use the debt deferment scheme imposed by the UAE Central Bank as part of Covid-19 relief efforts. She was informed that she could postpone her EMI payments for 12 months while she sought a new job. Devi returned to Dubai in 2022 and secured a new job, albeit with a 60% pay cut. Upon updating her employment status with the bank, now earning Dh7,200, she was offered a restructured loan plan: An EMI of Dh2,600, which is nearly half of what she used to pay when her salary was Dh18,000 per month. The loan tenure was extended to 17 years, resulting in more interest charges over time, and Devi’s total payable amount reached Dh530,400.
Extending the loan tenure makes monthly payments lower. However, a longer loan term means accumulating more interest charges. For example, a Dh10,000 loan with a 10% annual interest payable in four years will only cost Dh2,174 in interest, with a total payment of Dh12,174 at Dh254 per month. If the payment is extended to 8 years with a similar 10% interest, the principal plus interest will become Dh14,567 at Dh152 per month, making the loan Dh2,393 more expensive.
Atty. Barney Almazar, director of the corporate-commercial department at Gulf Law, who was consulted by Devi to review her case, told Khaleej Times: “The UAE Central Bank has established regulations to protect consumers from unfair banking practices. Banks are required to provide clear and complete information regarding loan terms and any changes to these terms, including deferments.” Almazar emphasized the need for financial institutions to provide transparent and comprehensive explanations of all terms to ensure clients fully understand the potential costs associated with their financial products. He also underscored the importance for borrowers to understand the terms and read the fine prints before accepting any contract or agreement.
Almazar is examining whether the bank failed to adhere to the UAE Central Bank regulations. Devi can file a formal complaint to the UAE Central Bank’s Consumer Protection Unit but must first gather evidence, including documentation of the bank’s lack of transparency and any unfair practices. Legal remedies include engaging a legal expert, gathering evidence, requesting detailed statements, identifying discrepancies, challenging the bank’s claim, highlighting vitiated consent, providing evidence of the bank’s lack of transparency and any unfair practices, and filing a formal complaint.
