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A KT reader asked if they could renegotiate lower EMI
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Question: I have had to take a pay cut as a cost-cutting measure. I have one year EMI outstanding on my car loan but no other liabilities. Will my vehicle be confiscated if I default on payments? What legal process is involved? Can I renegotiate to lower EMI?
answer: According to your query, UAE Central Bank Circular No. 3692/2012 on the provisions of the General Terms and Conditions and the Text of the Loan Agreement drafted and approved by the UAE Banking Association and Federal Decree No. 14 of 2020 amending certain provisions of 1993 on commercial transactions Federal Law No. 18 of the Law applies.
In the UAE, after obtaining a car loan from a lender, the borrower is required to pay the agreed monthly installments.
The borrower fails to pay the vehicle loan to the lender for three consecutive installments or non-consecutive six installments, and is deemed to be in default according to Article 5, paragraph 4, of the Auto Loan Agreement Format of the “Loan Agreement Format” approved by the Central Bank of the United Arab Emirates, which stipulates that “the loan is due , all installments, interest and any other charges and expenses are due and payable immediately without any notice or order of any court and without prejudice to any other rights of the Borrower under this Agreement or by law upon the occurrence of any of the following hour:
If the borrower makes monthly repayments for three consecutive installments or non-consecutive six installments without the consent of the Bank. “
Meanwhile, when a lender provides a car loan to a borrower, it receives a pledge fee pursuant to Article 2(1) of the securities and documents in the form of the loan agreement approved by the Central Bank of the United Guarantees and guarantees of the fees and any other sums due under this Agreement, the Borrower undertakes and undertakes to place a primary security over the Automobile in favor of the Bank with the Competent Authorities.”
If the borrower defaults on the vehicle loan, the lender may file a civil lawsuit against the borrower in a court with jurisdiction, ordering to seize the mortgaged vehicle of the borrower and auction it. However, if the amount received by the lender from the sale of the pledged vehicle through auction is less than the arrears due from the borrower, the borrower may have to pay the remaining arrears to the lender pursuant to Clause 4(4) approved by the Central Bank Auto Loan Agreement Format in Loan Agreement Format.
According to the said law, in the event of a default, the lender can deposit the secured check (if the borrower provides it to the lender) into its bank for collection. If a security check you issued to a lender bounces for insufficient funds, the lender may consider filing a civil lawsuit against you to recover the amount mentioned on the bounced check.
This complies with Section 635 of the Commercial Transactions Act, as amended.
Lenders can also apply to the courts to impose a travel ban on you, which may prevent you from traveling outside the UAE.
Since your salary has been reduced, you can contact your lender and ask to have your auto loan restructured. If your lender agrees to restructure your car loan and reduce your monthly installment amount, then you may need to submit documentation confirming that your current salary is less than what you took out when the car loan was awarded to you by the lender.
Ashish Mehta is the founder and managing partner of Ashish Mehta & Associates. He is qualified to practice in Dubai, UK and India. For more information about his firm, please visit: www.amalawyers.com. Readers can email their questions to: news@khaleejtimes.com or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.
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