What You Should Know About Debt Consolidation Loan in UAE

Financial liability in terms of multiple loans or credit cards is to be best handled by availing the option of a ‘Debt consolidation loan in UAE’. There are several banks in the UAE providing the services of a ‘debt consolidation loan’. As per the latest surveys, it is seen that at least three in five UAE residents have outstanding debts of various nature and therefore can benefit from the Debt consolidation services.

 How it works:

 Debt consolidation services is offered by almost all well-known banks in the UAE. As the term indicates, this service allows for the consolidation of all your outstanding liabilities arising from various loans or outstanding dues on credit cards into one single consolidated liability. This process has certain specific benefits, which goes beyond the convenience factor of being able to manage all outstanding liabilities together in one consolidated form; there exist additional monetary benefits.

 We will like to explain how debt consolidation works through this example:

 Let’s take the example of a person who has outstanding liabilities as follows: based on two credit cards Aed 25,000/- and Aed 20,000/- respectively and a separate personal loan for Aed 150,000/-. In normal instance, a separate interest percentage will apply on each outstanding liability, and fixed instalment payment will apply accordingly for each. When you proceed to consolidate the loan, the bank treats this as one outstanding liability and provides you with a revised lower interest and instalment figures at competitive rates, which provide considerable savings.

 Hidden costs figures:

 Often people end up being in spiral dive of never-ending debts because they fathom overlooking the hidden costs of interest rates on unpaid debt. As a market standard, the average interest rate applicable on a credit card is 2.9 per cent per months. However, if you equate the same to an annual percentage rate (APR) it comes off at as high as 40 percent. The annual percentage rate becomes applicable only if the regular monthly credit payments are not paid off and when you carry credit card balances from month to month. Often this is not properly understood and comes off as a hidden cost to most people. 

 By taking a debt consolidation loan, you can avoid the annual interest rates applicable to your credit card liability and instead obtain a revised monthly instalment figure that allows you to pay off your outstanding due amount in a structured manner balancing your earning to your liabilities. 

 Benefits of completing Debt Consolidation:

• It allows you better control of your finances by consolidating all your outstanding liabilities into one loan. It allows you to waive off paying high-interest rates on all your liabilities by providing you with a consolidated interest rate that is at a lower rate
• Flexible repayment plan
• Better financial control
• Allows to create savings on the interest payments that would have been otherwise applicable
• Allows you more disposable income and helps in better finances.

New insolvency law in the UAE:

 The United Arab Emirates introduced the new insolvency law no.19 of 2019 introduced in the month of August 2019. The Insolvency law allows the concept of “voluntary settlement process”. The process has been initiated to allow individuals facing financial difficulties to be able to seek a structured payment plan by utilizing a court led process. This process allows individuals to voluntarily file for insolvency and thereby utilize their legal options to protect their assets and to reach a structured installment plan with their creditors.

An individual can file for personal insolvency by approaching the civil courts under the Insolvency Law. Through the mediation process initiated by the Court which participation of relevant experts who are approved by the Court through a step-by-step process to develop a structured instalment plan.

 Voluntary settlement Process:

 The insolvency law allows for a voluntary settlement process at the instance of the debtor. Once a voluntary settlement plan is initiated, the debtor’s debts are not due and payable immediately but only on the basis of a structured settlement plan. The creditors are also allowed to actively participate in the settlement process. This law also prohibits individuals from filing for enforcement or liquidation against the assets of the debtor. Thus, it secures the assets of the debtor while at the same time allowing for a smoother settlement plan.

It is pertinent to note that the Civil courts will not allow settlement application from a debtor if the following factors apply, which are:

• The debtor has tried to conceal his assets
• The debtor has tried to dissipate any part of his assets
• If a false statement has been submitted by the debtor concerning his assets or liabilities
• The debtor has not settled a due debt for a period of time that has exceeded fifty consecutive business days.