Can banks use ILOE or gratuity to clear outstanding loans in the UAE?
How ILOE scheme works and whether it can ease financial pressure
Dubai: A recent Gulf News reader raised an important question: if you lose your job in the UAE, can your bank pause or restructure your loan repayments?
The short answer is not automatically. UAE banks are not legally required to suspend or freeze loan repayments when a borrower becomes unemployed. However, borrowers can request temporary relief or restructuring, which may be approved at the bank’s discretion under internal hardship policies and the UAE Central Bank’s Consumer Protection Regulations.
Can ILOE be used to pay off loans?
Another question raised was whether the Involuntary Loss of Employment (ILOE) scheme could be used to help repay loans.
ILOE is a mandatory unemployment insurance scheme introduced in 2023, designed to provide financial support to employees who lose their jobs involuntarily. It offers up to 60% of an employee’s average basic salary for a maximum of three months, helping cover living expenses while jobseekers find new employment.
The scheme applies to both public and private sector employees, but to be eligible, individuals must have paid into the scheme for at least 12 consecutive months and submit a claim within 30 days of job loss.
Can banks use ILOE payments or gratuity to recover loans?
According to Emily Aryeetey, Partner at Stephenson Harwood Middle East LLP, there is no law preventing banks from using a borrower’s final dues — such as gratuity or ILOE benefits — to reduce outstanding loans if these are credited to a linked salary account.
“In practice, banks often do this, particularly where the account has been pledged as collateral,” Aryeetey told Gulf News.
She added that employers should ensure all termination and final payment details are properly documented to support any ILOE-related claim.
There’s nothing in the Labour Law that restricts a bank from using an employee’s final dues, such as gratuity or ILOE benefits, to reduce outstanding loans if those amounts are credited to a linked salary account. In practice, banks often do this, particularly where the account has been pledged as collateral.
Do personal loans include job-loss insurance?
Many UAE banks bundle credit life or loan protection insurance with personal loans, explained Ahmed Odeh, Managing Partner at MIO Law Firm. This insurance typically covers the borrower’s death or permanent disability.
“Some lenders extend this coverage to include job-loss protection, which provides temporary relief — usually up to three months — if the borrower is terminated due to reasons beyond their control, such as redundancy or company closure,” Odeh said.
However, it’s important to note that:
Banks are not legally obligated to include job-loss insurance.
Coverage depends entirely on the insurance contract between the borrower, bank, and insurer.
Resignation, misconduct, or the end of a fixed-term contract typically voids claims.
Coverage periods vary across banks.
Some lenders offer Credit Shield programmes, which act as added protection during temporary income loss.
Some lenders extend coverage to include Involuntary Loss of Employment (ILOE) protection, which provides temporary relief (usually up to three months) if the borrower is terminated for reasons beyond their control, such as redundancy or company closure.
How to check if your loan has job-loss insurance
Borrowers can verify whether their loan includes job-loss insurance or Credit Shield coverage by checking:
Loan agreement and insurance certificate – Look for terms like ILOE, Credit Shield, or Job Loss Protection, along with benefit limits and insurer details.
Schedule of fees and charges – Check for “Credit Life Insurance” or “Loan Protection Premium” entries.
Written confirmation from the bank – As per Article 12 of the Central Bank’s Consumer Protection Standards (2021), banks must disclose any third-party insurance linked to the loan.
If none of these documents mention ILOE or Credit Shield, the policy likely covers only life and disability.
How to file a job-loss insurance claim
If your personal loan includes job-loss or Credit Shield protection, here’s what to do:
Notify your bank immediately after losing your job.
Submit supporting documents, which usually include:
Termination or redundancy letter
Emirates ID and passport copy
Loan account details and recent salary slips
End of Service Benefits (EOSB) statement
The bank will forward your claim to the insurer for review.
If approved, the insurer pays the bank directly, covering instalments for the approved period (usually three to six months).
If rejected, you remain liable for repayments but can request restructuring from your bank.
Three common scenarios for managing loan repayments after job loss
According to Odeh, borrowers facing unemployment typically fall under one of three situations:
1. Rescheduling with the bank
If you don’t have ILOE or insurance coverage, you can request the bank to reschedule or defer payments under hardship or restructuring programmes.
2. ILOE coverage through government authorities
If you’re enrolled in the national ILOE scheme, you can file a claim through official UAE government channels. This scheme is separate from the bank’s insurance and provides temporary financial assistance while you look for a new job.
3. Credit shield coverage with the bank
If your loan includes a Credit Shield or similar policy, your bank and its insurer can process a claim directly, temporarily covering instalments during unemployment.
Bottom line
While losing a job can make loan repayments challenging, UAE residents have several relief options depending on their insurance coverage and bank policies.
Banks are not obligated to pause payments, but communication is key — reach out early, understand your insurance rights, and check if your loan includes any job-loss or ILOE-related coverage.
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