By: Ambareen Musa, Founder & CEO of Souqalmal.com
Settling a loan and cutting back on debt can be rewarding in more ways that one – It takes away the stress of keeping up with installments, improves your debt-to-income ratio, helps you avoid the high-interest money drain, and allows you to save more towards your future financial goals.
And if you’ve made up your mind about getting rid of those nagging loan installments, it’s best to do so systematically, keeping all the implications in mind.
The team at Souqalmal.com has prepared the following five-step guide to help you figure out how to settle your debts efficiently.
Step 1: Take Stock of Your Debt Situation
If you have more than one debt commitment and want to eliminate some or all of this debt, focus on settling the one with the highest interest rate first. Unsecured personal loans, especially the ones that do not have a salary transfer or company-listing requirement, usually come with very high interest or profit rates.
You should make a list of all your debts, arrange them in descending order of interest rate, and prioritize your lump sum repayments accordingly.
Step 2: Find Out the Final Settlement Figure
From a borrower’s perspective, there are two very different reasons for settling a loan prematurely – You find yourself with some extra cash and don’t need the finance anymore, or you’re struggling with regular repayments and want to negotiate a reduced lump sum settlement.
While the former would only have to worry about the early settlement fee (1 percent of the outstanding loan amount) when settling the loan, the latter would be more concerned with avoiding late payment fees and penalty interest while negotiating the lowest possible settlement amount.
Once you’ve finalized your debt settlement, make sure you get the agreement in writing. You don’t want to be hounded by debt collection agencies months after you presume the repayment is done and dusted.
Step 3: Pay the Dues and Retain Proof
Once you put in a request for loan settlement, the bank will lay out the next steps towards making the final payment. Now, you obviously want the payment to be properly documented. Whether you’re handing over a cheque or making an electronic payment, make sure you get a confirmation of payment receipt by the lender.
Step 4: Get a No-Liability Letter
Once you’ve paid off your dues in full and have closed the loan or credit card account in question, make sure that you obtain a No-Liability Letter/Certificate from the bank or credit card provider. This document, also known as a clearance letter, verifies that all your outstanding dues have been cleared. In case you had provided any post-dated cheques to the lender, be sure to have those returned to you as well.
Based on the recently issued regulations by the UAE Central Bank, the bank fee for issuance of such a clearance letter is capped at AED 95 for home loans, AED 50 for credit cards, and AED 60 for personal and car loans.
Step 5: Review Your Credit Report
After you’ve settled your debt and obtained a clearance letter from the bank, there’s still one more step to go towards ensuring that your debt slate is wiped clean. You can close the chapter on your debt once and for all by applying for your credit report and checking it to see if there’s any outstanding debt or associated charges listed in it.
Most likely, the credit report should reflect the full debt settlement, but in case it does not, you are well within your rights to dispute the error. You can approach the Al Etihad Credit Bureau and register a dispute within 60 days of obtaining your credit report.