The Debt Panel: 'Can I ask my bank for a discounted rate to pay off my personal loan?'

The Dubai resident has paid off the principal but still has another 15 months left on the tenure of the loan

Steven Castelluccia / The National

In June 2018, I took out a four-year personal loan of Dh81,000 to establish a company with a partner. With interest, the total amount to repay comes to Dh105,000 and the monthly loan instalment is Dh2,195. Unfortunately, I was cheated out of the company and the loan went to waste.

I have already paid off the principal of the loan, and have another Dh24,000, or 15 months, left to pay on it.

Due to the current pandemic situation, my salary has been reduced and I am struggling to pay the loan each month. I also have debts to pay in my home country. However, I haven’t missed a payment.

I would like to clear the remainder of the debt at a discounted rate and with no early discharge penalties. I don’t want to request a payment holiday or even restructure the loan under the Central Bank of the UAE’s Targeted Economic Support Scheme (Tess). I just want to pay the loan out as soon as possible.

Can you advise me on what I should do regarding this? Are banks open to these types of discussions – or will they only allow me to restructure it under Tess? SP, Dubai

Debt Panellist 1: Steve Cronin, founder of DeadSimpleSaving.com

I’m sorry to hear about your company. Do you have any legal recourse to get the money back? It is generally a bad idea to start a company with a loan, even if it is seen to be the traditional approach, as it puts the company in a financial hole from day one.

It is much better to start the company slowly if it is a services business or find external investors if it requires upfront capital investment. If you do not have the money to start a company, it is probably best avoided as the chance of losing your money is extremely high.

Well done for not missing a payment. You suggest you have only Dh24,000 to pay but that would be Dh1,600 per month over 15 months. Have you made an overpayment at some point? At Dh2,195 per month, it would otherwise take you 37 months to pay off the principal of Dh81,000.

That assumes that the whole Dh2,195 was going fully to the principal repayment each month, whereas a typical loan payment goes increasingly to the principal and partly to interest. So, the bank may not agree with your thinking that you have paid off the principal and now want to reduce interest payments.

The bank may agree to decrease the duration of the loan but this would usually come with increased monthly payments rather than a reduction in the total interest paid. All you can do is lay out your case very clearly, try to find someone reasonable in the bank to deal with and be persistent. It may be that another bank might be willing to take over the remainder of the loan and give you a better interest rate.

However, a new bank may charge an arrangement fee. Even if you stick with your current bank, they may not be happy to waive an early repayment fee. If there is any kind of payment holiday or restructuring you can get under the Tess programme, you might as well take it, as this will give you more space to improve your finances at no cost to you.

Meanwhile, do what you can to boost your income through any additional means necessary and reduce your expenses, so you have more spare cash each month to put towards your debt and build a safety buffer. Once you have paid off your debts in Dubai and back home, then you need to start creating a new life for yourself that is much less reliant on debt, having seen the problems it can cause you.

Debt panellist 2: R Sivaram, executive vice president and head of retail banking products at Emirates NBD

You have gone through some unfortunate situations but I am glad that you are being conscientious and making efforts to meet your obligations in a timely manner.

As a first step, I would suggest you meet with your bank and explain your position. Given that you have only a small portion of the loan left to be repaid, one option is to request the bank to provide a reduced settlement amount if possible to close the loan immediately.

Alternatively, you could try to agree on a revised repayment schedule for the remaining balance that can reduce the monthly instalments.

This would allow you to better manage your cash flow and expenses in the immediate term and give you time to save and settle your loan once you have the sufficient funds.

I wish you the best of luck in arriving at a mutually acceptable solution. Hopefully, you will put this behind you soon.

Debt panellist 3: Carol Glynn, founder of Conscious Finance Coaching

Banks usually don’t give a discount when paying off a loan in advance. I would, however, ask to speak to your relationship manager as there is no issue with asking for options. The worst that can happen is they say no to your request.

First, I recommend you check the terms and conditions of your loan agreement. There will be a clause discussing early payment that outlines any penalties for closing out the loan early.

Often, there will be an amount you can overpay each year without penalty. Given the remaining balance of your loan, you may be able to take advantage of this clause and pay the maximum amount allowed without penalty or fines. This will help you pay off the loan quicker and cheaper.

If this is not possible, then restructuring is an option. I don’t expect the bank will discount or restructure the remainder of the debt without a specific reason such as a reduced salary or job loss.

They will likely offer to restructure the loan and to achieve this you will need to apply under the Tess programme. It’s unclear why you do not want to take advantage of this scheme given your salary has been reduced due to Covid-19.

It will be the easiest and quickest way to negotiate and restructure the current terms of your loan. You are in a good position to negotiate as you have employment and have an unblemished payment history.

It would be much more difficult to negotiate loan restructures or payment holidays if you were unemployed as the banks tend to get nervous about a customer's ability to repay.

To apply under Tess, you will need confirmation from your employer that your salary was reduced due to Covid-19. Your unblemished past payment history will be viewed positively by your bank and provide them with the assurance that you will pay the loan back.

Ensure you understand all the terms and conditions applied to any restructure and do the maths to ensure that what is being offered is, in fact, financially beneficial to you and will help you achieve your goal of paying the loan off as early as possible.

You are wise to avoid a payment holiday as interest will accumulate during the period you don’t make instalments and the loan will cost you more in the long run.

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 [e-mail]