Death or unemployment - who pays the debt?
Death or unemployment - who pays the debt?
Dubai: Accumulating debt on a credit card can be one way to cover costs of living and tie you over until the next pay cheque, but what if that pay cheque never comes after losing your job? Or worse, who is expected to face the debt of someone who has died?
If unemployment occurs, according to HSBC, no action will be taken if payments continue. "If the customer is unable to make payments then we have a specially trained unit who will contact them and find a solution to help them.
"Very often the customer is in a transition period to the next job. If anyone is in this situation, we would encourage them to contact us and we will work with them to find a solution," said George Lennox, head of personal finance services credit at HSBC Middle East.
If death occurs, HSBC offers life coverage to customers, which is triggered at the time of death.
At RAK Bank the outstanding amount on a credit card will only be covered by insurance if the card holder has applied for Credit Shield at the time of application.
This is also the case if the card holder is terminated from employment. However if the holder resigned and cannot keep up repayments, then the case will be handed over to the Banks Collection unit as necessary.
At the National Bank of Abu Dhabi, the outstanding amount for card holders with credit shield will be waived or cancelled.
"In addition to this, if the death was due to an accident, we pay out an additional lump sum of money directly to the customer's family," said John Malouf, NBAD's Head of Retail Banking Group.
Know how: Definitions
- Credit rating agencies give banks an idea on the likelihood of the potential borrower's capacity to pay back his or her loan by rating their credit history.
- Like credit rating agencies, credit bureaux assess the credit-worthiness of a borrower by getting information from member corporations. Based on a mutual benefit system, members share information in exchange to receiving information. Unlike credit rating agencies, bureaus do not
score borrowers. - Credit shield is an insurance system that can have a credit card holder's loan waived in case of death and permanent disability. For a premium, often a percentage of the loan, the card holder can avoid being burdened with the loan, or burdening others, should he or she become disabled
or die. - A credit card is a quick and pre-approved loan of a certain amount, known as the credit limit. It is different from a debit card in that its use does not withdraw money from the holder's account immediately but allows him or her to pay it gradually for an interest. A minimum monthly payment is necessary, and is usually determined by the amount spent on the card.
Risky business: What can happen if you cannot pay back?
Let another company take on your payment: Some banks will be willing to pay off your credit card bill if you take a new account and credit card from them. You then have to pay the new company installments instead. This can be the makings of a vicious circle.
Credit rating: In the UAE credit rating doe not exist, but in other countries, this can determine your chances of getting credit cards. All your payments are kept on record, meaning if you have had trouble or are late with payments; the next time you apply for a credit card or a loan, the company will be able to look in to your record to see whether it is worth them taking the risk.
Repossessing: This is again unheard of in the UAE, but in other parts of the world, credit companies are able to take back everything you have purchased with your credit card. If the value of the items does still not cover your debt, then other items can be taken from you as well, to the extent of taking your home.
