What happens to your bank loan if you lose your job in the UAE? 

Dubai: Losing your job can be overwhelming, especially when you still have monthly loan repayments to manage.

One reader recently shared this concern, asking what happens to an active salary loan if they are laid off, whether due to company downsizing or bankruptcy. Can the bank pause payments until a new job is found? Would there be fees for that? And if the loan is insured, does that provide any relief? What if the next job pays less - can the repayment plan be adjusted to match the new income?

To help clarify what really happens in such situations, UAE-based legal experts, explained the legal framework, available options for temporary relief, and how insurance and employer obligations come into play when employment ends.

According to Ahmed Odeh, Managing Partner at MIO Law Firm, banks are not legally obliged to freeze or suspend loan repayments when a borrower loses their job or is between employment. However, borrowers may request temporary relief or loan restructuring, which can be granted at the bank’s discretion in line with internal hardship policies and the UAE Central Bank’s Consumer Protection Regulations (2021).

Under Federal Decree-Law No. 50 of 2022 (the Commercial Transactions Law), a personal loan remains a binding contractual obligation even after the borrower’s employment is terminated.

“Article 82 of this law provides that courts cannot postpone or divide instalments unless the creditor consents, or the borrower proves exceptional hardship. Therefore, there is no statutory payment holiday for borrowers who lose their jobs, and loan instalments continue to be due as per the original repayment schedule,” Odeh explained.

Any deferment, suspension, or revised payment plan must be formally agreed between the borrower and the bank. Without such an agreement, delayed payments may be classified as default, allowing the bank to initiate recovery measures.

In the UAE, losing a job, whether due to redundancy, resignation, or company closure, does not extinguish or suspend a borrower’s obligation to repay a personal loan.

If the borrower defaults, the bank retains its right to recover outstanding amounts through civil proceedings in accordance with Federal Decree-Law No. 42 of 2022 (the Civil Procedure Law). Depending on the loan agreement, the bank may:
• File a civil claim to recover the unpaid balance.
• Obtain a court judgment and pursue execution proceedings, which could include freezing or deducting from the borrower’s salary account or end-of-service benefits (EOSB) if permitted under contract terms.

“From a financial standpoint, Article 72 of the Commercial Transactions Law allows banks to charge the agreed contractual interest rate,” he said.

Where no rate is specified, UAE courts generally apply a 5% annual rate as established by Dubai Cassation Resolution No. 1 of 2021. While compound interest is prohibited, simple or delay interest may lawfully be applied in case of default.

“Borrowers who lose their jobs may approach their bank for temporary relief or restructuring, such as payment holidays or revised instalment schedules. However, such concessions are policy-based and subject to the bank’s discretion. Courts may grant limited extensions in exceptional hardship cases under Article 82, but this remains rare,” he said.

In extreme situations where repayment becomes impossible, individuals may seek protection under the Insolvency of Natural Persons Law (Federal Decree-Law No. 19 of 2019, as amended by No. 35 of 2021). This framework allows for court-supervised debt restructuring or liquidation and provides a temporary suspension of enforcement actions while a repayment plan is arranged.

“Although not mandated by law, most UAE banks have internal hardship or rescheduling policies that allow temporary relief in genuine cases of job loss or income disruption,” Odeh added.

The UAE Central Bank’s Consumer Protection Regulations (2021) and Notice No. 3692/2012 on Personal Loans encourage banks to consider fair and transparent solutions such as:
• Short-term payment deferment (usually one to three months).
• Restructuring of instalments or tenure extension.
• Adjusted repayment schedules to match new income levels.

Such measures are discretionary, not guaranteed, and depend on the borrower’s financial history, repayment capacity, and supporting documentation.

If you are in a similar situation, the standard process followed by banks includes:

If no deferment is granted and payments are missed, the bank may obtain a court judgment and request to freeze funds or EOSB if permitted by the loan agreement.

“If a company goes bankrupt or winds up, employment contracts automatically come to an end, and employees are entitled to receive their end-of-service benefits and final dues within two weeks,” said Emily Aryeetey, Partner at  Stephenson Harwood Middle East LLP.

Under UAE bankruptcy law, these payments are treated as priority debts, meaning employees rank ahead of most other creditors.

She added that it is notable that employers are increasingly looking at the new end-of-service savings schemes as a way to give staff greater protection, since these funds are designed to safeguard benefits from risks such as default, inflation, or insolvency.

If a company goes bankrupt and employees are laid off, their financial obligations do not disappear. The UAE Labour Law does not specifically address personal or salary-linked loans, which remain the responsibility of the employee even after redundancy or company closure.

“From a practical standpoint, it is wise to speak to the lender at the earliest opportunity. While the employer’s bankruptcy doesn’t cancel the loan, banks may be willing to restructure payments or offset any final dues paid into the salary account,” said Sona Poghosyan from Stephenson Harwood Middle East LLP.

From the employer’s perspective, it is essential to ensure that all final payments, including end-of-service benefits, are processed promptly and within the legal deadlines.

“For employees, it is wise to be transparent with their bank and promptly discuss any temporary relief or restructuring options,” Poghosyan added.