Many people have already lost their jobs. Many are dreading the bad news any day now. Many may face job loss in the near future. While health-wise the pandemic is taking its toll on a small percentage of the global population, on the economic front it’s an altogether different story. The number of financially impacted individuals is (and is going to be) much much higher that those dealing with the actual disease.
Now imagine this scenario – You’ve just faced the harsh reality of a lay off. With no income, you’re waiting to land another job as soon as possible, or be repatriated to your home country as soon as flights become available. In the meantime, you’ve got to rely on your savings and your final dues from your employer in the form of ‘End of Service Benefits’ or EoSB for short…
But what if you never get to see or use your EoSB ?!
If you have a personal loan in the UAE, you may be in for a rude shock when your EoSB, including your final salary and gratuity, is transferred into your bank account. In fact, many borrowers are completely unaware of the fact that their lender may have the first right over their EoSB.
Is that even legal?
Yes, a closer at personal loan terms and conditions reveals this lesser-known fact. As standard practice, banks in the UAE add a clause in personal loan contracts that gives them complete authority to adjust and offset the borrower’s EoSB towards the outstanding loan.
Why would a bank do this?
Think of it as a way to ensure the recovery (at least partially) of an otherwise unsecured loan, which was granted to you simply on the basis of your salary and employer credibility.
What part of the EoSB is withheld by banks?
Usually, all of it. The EoSB, as defined by banks in personal loan contracts, normally includes your final salary payment, gratuity entitlement, payment in lieu of notice period, payment in lieu of accrued and unused leave, and any other redundancy related payments from the employer.
The bank has blocked my EoSB. Can I claim it back?
Normally, banks would release and reassign the EoSB back to the borrower, upon receiving a written request AND if there is no outstanding loan balance remaining. This may not affect borrowers who are comfortably able to move on to another job immediately, or were anyway planning to relocate abroad after closing all their debts in the UAE.
But the current situation is very different. An increase in the number of lay offs and a scarcity of new job vacancies, will make it impossible for borrowers to repay their loans immediately. And there hasn’t been any news signaling that banks would relax this EoSB offset clause as part of their financial relief measures. But if you’re stuck in this situation, here’s what you can do…
- Reach out to your bank – Visit a bank branch and speak with a bank representative, who may be able to help you explore all the relief options available to you. For example, you can request for a partial release of your EoSB.
- Seek legal advice – Some personal loan contracts may only give the bank a right to withhold your gratuity, and not other redundancy related payments. If feasible, have a legal expert review the terms and conditions in your loan agreement.
- Check if your personal loan comes with job loss insurance – Check your personal loan agreement or speak to a bank representative to figure out if you have ‘involuntary loss of employment’ insurance benefits as part of the original deal. This benefit can help cover your monthly loan installments for a few months.
- Look for part-time, freelance or temporary work – If you can’t depend on your gratuity and end of service payments to help you get through a period of unemployment, you will have to look at other sources of income. Landing a full-time job may be difficult on short notice, so tap into your contacts and try to find temporary or part-time work to help sustain yourself.
- Plan ahead for financial emergencies – If you haven’t faced the above-mentioned situation, you should start planning ahead and have a financial back-up plan ready. Make sure you have an emergency savings fund in place. You can save up some physical cash or save your income in a separate savings account. This money will help tide you over difficult times.