What you need to know about a debt consolidation loan in the UAE?

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Financial liability in the form of multiple loans or credit cards is best dealt with by taking advantage of the UAE Debt Consolidation Loans option. There are several banks in the UAE that provide “debt consolidation loans” services. According to the latest polls, at least three out of five UAE residents have outstanding debts of various nature and therefore can use debt consolidation services.

How it works:

Debt consolidation services are offered by almost all well-known UAE banks. As the term indicates, this service allows you to consolidate all of your outstanding liabilities arising from various loans or outstanding credit card payments into one consolidated liability. This process has certain advantages that go beyond the convenience factor of being able to manage all outstanding obligations together in one consolidated form; there are additional cash benefits.

We would like to explain how debt consolidation works with this example:

Take, for example, a person who has the following outstanding obligations: on the basis of two credit cards – AED 25,000 and AED 20,000, respectively, and a separate personal loan of AED 150,000 / -. In the normal case, a separate percentage will be applied for each outstanding liability and, accordingly, a fixed installment payment will be applied for each. When you embark on consolidating a loan, the bank treats it as one outstanding liability and provides you with revised lower interest rates and installment payments at competitive rates, resulting in significant savings.

Hidden cost figures:

Often times, people are caught in a spiral of endless debt because they find they are oblivious to the hidden costs of interest rates on unpaid debt. According to market standards, the average credit card interest rate is 2.9 percent per month. However, if you equate that with the Annual Percentage Rate (APR), it turns out to be at 40 percent. The annual interest rate only applies if the regular monthly loan payments are not paid and when you carry over your credit card balances on a monthly basis. This is often not properly understood and becomes a hidden cost for most people.

By taking out a debt consolidation loan, you can avoid the annual interest rates applicable to credit card liabilities and instead get a revised monthly payment amount that will allow you to pay the outstanding amount owed in a structured way, balancing your earnings with your liabilities.

Benefits of Completing Debt Consolidation:

  • This allows you to better control your finances by combining all outstanding obligations into one loan. This allows you to opt out of paying high interest rates on all of your obligations, giving you a consolidated interest rate at a lower rate.
  • Flexible repayment plan
  • Better financial control
  • Allows you to save on interest payments that would otherwise be applicable
  • Provides more disposable income and helps improve finances.

New insolvency law in the UAE:

The United Arab Emirates introduced a new insolvency law # 19 of 2019, effective in August 2019. Insolvency law allows for the concept of a “voluntary dispute resolution process”. The process was initiated to allow individuals in financial hardship to seek a structured payment plan using a court-led process. This process allows individuals to voluntarily file for insolvency and thus use their legal power to protect their assets and enter into a structured installment plan with their creditors. An individual can file a petition for personal insolvency by applying to civil courts under the Insolvency Law. Through a mediation process initiated by the Court, with the participation of relevant experts approved by the Court, through a step-by-step process to develop a structured installment plan.

An individual can file a petition for personal insolvency by applying to civil courts under the Insolvency Law. Through a mediation process initiated by the Court, with the participation of relevant experts approved by the Court, through a step-by-step process to develop a structured installment plan.

Voluntary settlement process:

Insolvency law allows for the voluntary settlement of a dispute at the request of the debtor. Once the voluntary settlement plan has begun, the debtor’s debt is not payable immediately, but only on the basis of a structured settlement plan. Lenders are also allowed to actively participate in the settlement process. This law also prohibits individuals from filing claims for enforcement or liquidation of the debtor’s assets. Thus, it protects the assets of the debtor while at the same time providing a smoother settlement plan. It is pertinent to note that the civil courts will not allow a petition for settlement from a debtor if the following factors are at work, namely:

  • The debtor tried to hide his assets
  • The debtor tried to squander any part of his property
  • If the debtor has provided false information about its assets or liabilities
  • The debtor has not repaid the outstanding debt for a period of time exceeding fifty consecutive working days.

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