There is an economic slowdown all over the world due to the Covid-19 Pandemic. If you have an outstanding personal loan where you need to make monthly payments, then it can be quite overwhelming during this time. The Central Bank of UAE has provided temporary relief for loan holders as in the loan holders need not pay interest or profit rate amount on their respective loans depending upon the bank they are availing services at.
What exactly is Loan deferment?
Loan deferment is a facility provided to the loan holders where they can skip the loan payments for a while. This is a pre-approved facility which is approved on a mutual agreement between the lender (bank) and the loan holder.
As the loan deferment option works only if it’s pre-approved, the loan holder needs to speak with the bank officials and request for a loan deferment option by explaining their financial situation. If the bank approves the request then the loan holder can skip instalment payments for a specific period as decided.
How does the Personal Loan Deferment Work?
When you agree to defer a loan payment, you skip the payment of that particular month(s). For example, if you got your instalment deferment approval for the month of May, then you can skip May month payment and resume your payments from June.
The loan holder must also note that the loan deferment must be approved and the dates are important factors. If you have the loan deferment starting from May 5th but your regular instalment payment is on May 1st, then you need to make the May month payment and defer the June month payment.
Usually, banks charge a small fee on the instalment deferment. But during Covid-19 pandemic, the instalment deferment option was provided for free.
Once the deferment period is completed, and you still can’t make your loan payments, you can contact your bank and request for another month deferment. Each time you want to skip the loan payment, you need to contact your bank and get it approved. Otherwise, the bank won’t consider it as a deferment and charge a hefty fee along with increasing interest rate.
Banks providing Personal Loan Deferment option in UAE
Usually, every bank in the UAE provides loan deferment facility on all the loans. As per the Central Bank of UAE regulations, most of the banks have rescheduled the loan repayment dates for the customers.
The customers can get loan repayment holiday on providing proofs stating that they are affected by Covid-19. Initially, the loan relief packages were provided till June 30, 2020, later according to the new statement by the Central bank of UAE, the loan payment deferral is extended till June 2021. Some of the well-known banks offering loan relief facility are,
- Emirates Islamic Bank
- Emirates NBD
- Dubai Islamic Bank
The loan deferment facility provided by the banks is at zero cost where there won’t be any fees levied on deferring the loan payments.
However, this is applicable to only loan holders affected by the pandemic and customers who are applying for the relief will be given higher priority than the ones applying for the second time during this pandemic.
Also, Check: What UAE banks are offering during Covid-19
Does Personal Loan Deferment affect your Credit Score?
Though personal loan deferment facility is a pre-approved one by the financial authorities, there is a huge dilemma among the loan holders whether skipping the loan payments affect their credit score.
When banks or financial institutions approve the deferment assistance, they should not report it to the AECB (Al Etihad Credit Bureau) as missed or skipped payment which will negatively impact the credit report. Hence you must check your credit report and verify no such record is made.
Your credit score may impact negatively only if your bank didn’t approve your loan deferment request and you’ve skipped the payments still. Ensure you don’t skip the loan payments until you get an official approval letter or confirmation from the bank. And also do check the start and end date of the deferment period.
The deferment option is not just provided for personal loans but also other finances like auto loans, home loans, business loans, etc. Before availing the loan deferment service make sure you read and understand the terms and conditions of your bank.