can't repay the loan

What if you can’t repay your bank loan in UAE?

If getting a loan is one part of the story, repaying it would be another. There are several things noted by the banks in the UAE while approving a loan which includes minimum income, debt-to-burden ratio, credit score and much more. Once these factors match their requirements, banks approve the loan application. After getting the loan it would be the borrower’s responsibility to repay it back on time without any delays. There can be situations, where the loan holder fails to repay the loan. If the loan holder goes default on the loan and can’t make any further payments, the action that would be taken varies with the type of the loan i.e. Secured or Unsecured.

Check: Tips to find the best personal loan in UAE

A secured loan is a type of loan where the financial institutions and banks provide the loan when an asset is pledged to them as collateral. Home loans, Car loans, etc. come under the secured loans category. 

An unsecured loan is a type of loan where the borrowers don’t pledge any assets as collateral for the loan. The loan is provided just on the basis of the credit score and monthly income. Personal loans come under the unsecured loan category.  

Be it a secured loan or unsecured loan, if the loan holders go default on his payments, the financial institutes/ banks in UAE tend to take legal action after a certain level of reminders given. In the case of the secured loan, the legal action might be making use of the asset pledged to get his loan amount back. Whereas in the case of an unsecured loan, legal action can be different.

What if you don’t repay your loan?

All the loan applicants will have this question, what if you can’t afford your loan anymore? Under such circumstances the following actions take place,

Late payment fees 

When the loan holder doesn’t pay the installment even after the deadline, there would be a late payment fee added to the EMI of the loan. This late payment fee is irrespective of the loan type i.e. it applies to both secured and unsecured loans. 

Credit Score 

When the loan installment is not paid on time and where there are delays in the installment payments, these details will be added to the credit report of the loan holder. If the loan holder skips the installment payments for a longer time, it will have a negative impact on the credit report resulting in a huge drop in the credit score. One thing to be noted is, it would take several years to build a good credit score again.


When the repayments are being missed by the borrower, the lender will give a friendly reminder to the borrower and request them to resume the loan repayment.

Legal Action

If the reminders are ignored after a certain limit, banks proceed further with a legal notice. Here the process for the secured and unsecured loan differs. 

Under the secured loan, the asset pledged will be put for an auction. The borrower is given a certain period of time to clear the loan else the asset pledged will be put for an auction. Even during the auction, the borrower can clear the loan and get his asset back else the bank will sell the asset and compensate it with the outstanding loan amount. 

In the case of an unsecured loan, legal action can be critical. Firstly while getting the loan approved, the borrower must provide signed blank cheques to the bank. If the borrower fails to make further loan installments, the lender will deposit the cheque and if there is no balance in his account, the borrower will be arrested for cheque bounce case with the fine amount and imprisonment. The borrower will have to serve the jail sentence and repay the loan at any cost. The loan holder can’t leave the country until the loan is cleared. 

How to avoid legal penalties?  

There can be several reasons behind not being able to afford the loan, maybe high-interest rates, stop of monthly income, etc. Under such circumstances, the borrower needs to take the right step without putting himself into any further troubles. 

Some of the ways the borrower can try in order to avoid the legal penalties are, 

  • Talk to the lender – The borrower can talk to the lender and explain his situation. He can provide some assurance that the loan installments repayment will be resumed soon and convince the lender.
  • Debt consolidation – The loan holder can avail the debt consolidation loan in UAE by choosing a bank that provides loan on less interest rates. But the borrower must check the terms and conditions and processing fees added.   
  • Asking family or friends for help – You can ask your family or friends for financial help. 

Life is unpredictable. Everyone must be prepared not only mentally but also financially to overcome critical situations. Every loan holder must ensure the loan installments are paid on time without any delays. They must handle the debt smartly without taking any risky moves.   

Meet the author
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Nikitha is a Senior Analyst at She has been writing about personal finance, credit cards, mortgage, and other personal finance products in the UAE. Her work on Mortgage loans has been featured by the GulfNews and other popular Financial Blogs in the UAE.







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