Why defaulters will find it tough to get loan in UAE

XJ Brown’s (name changed) was a classic expatriate success story. He came to Dubai in 2002, and had everything going for him – a good family, a great lifestyle and a perfect job. With his handsome salary and annual bonus, the Browns could afford to rent a four-bed villa in one of the most posh localities in Dubai and send their kids to the best school in the country never mind its exorbitant fees.

Then came the financial slowdown, and like so many of his friends back home, Brown lost his job here in the UAE. With not many high-paying jobs going around, he checked around in some of the other expat destinations too, but as he’d feared, the recession was indeed global.

His erstwhile company, though, was good to him and allowed him to stay on in the country until the end of his kids’ school session. His income had dried up, but the bills kept arriving without fail, and his financial jugglery of paying the minimum amount outstanding on his credit cards only meant that the interest charges kept piling on until he finally defaulted on his credit card and personal loan payments, with a huge outstanding.

Brown, meanwhile, kept up his job-search and after eight painful months, did find one although his salary was a shade of what it once used to be. So the kids now go to a good school but one that charges half the fees that the earlier school charged. The villa has been downgraded into a two-bed apartment. Both the expensive four-wheel drives are gone, traded in for one mid-sized, fuel-efficient sedan.

All these changes meant that, though gradually, the Browns managed to pay off their debt, even if it was after much pleading and haggling with their banks.

Now that his life is back on track – minus the embellishments – Brown wants to systematically build his fortune up again, starting off with a house of his own. “I have a reasonable job now, and even my wife is freelancing now (we manage the monthly expense with what I earn and her earnings are our savings),” he says.

“Now that things seem steady for us and with the real estate prices dipping, I am considering buying a home but am worried that the defaults on my credit file would be a showstopper however big a deposit we can raise. What are my chances of getting a mortgage?” he asks.

Getting a loan after defaulting on previous ones is something quite difficult, say experts. In today’s environment, banks are once bitten, twice very bashful, they maintain. Banks are looking at safeguarding their interest and will now lend to only those who they are reasonably sure will have the ability and inclination to repay.

“Generally, banks are very reluctant to lend to customers or potential customers who have a bad credit record as banks are keen to safeguard interests of depositors and stakeholders,” Suvo Sarkar, General Manager of National Bank of Abu Dhabi’s (NBAD) Consumer and Elite Banking, told Emirates 24|7.

“In countries such as the US where everyone’s credit record is available from a credit bureau, it is relatively simple for a bank to check, and a poor credit rating will effectively preclude any further lending by banks. In the UAE, where there is no federal level credit bureau, banks still try to check a potential customer’s credit record before lending, and this can be done to a certain extent through a Central Bank check or by examining past bank statements,” he added.

“Returned cheques and late payment fees are indicators that the customer might be a poor credit risk, and banks will normally decline such applications,” he added.

But it isn’t all hopeless for people like Brown. They still stand a chance – however bleak – if they manage to convince their lenders about their intent and good financial status. “If the banks are still comfortable lending, they might apply a higher interest rate to reflect the higher risk,” said Sarkar.

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