On Credit Cards and Personal Loans

For this whole week, news about the new Qatar Central Bank (QCB) regulations for bank loans including credit cards have been hogging the headlines of all the newspaper in Qatar, and I'm sure it had caught the attention of the locals and majority of expatriates who are generally affected by these rules.

When I first arrived in Qatar in the year 2000 I have already heard stories of how the expat Pinoys' lives have changed in the Philippines because of the accessibility of bank loans here in Qatar. Most were able to build family homes, buy new cars or in some other way invest their earnings with the help of these loans. The usual logic is that if you try to save on your own, there is a big tendency of failure. However, if on the onset you are able to loan a big amount to build a house for example, it would be easier to repay since it would be on salary deduction, and you wouldn't have a choice because the banks would already have deducted the money before you even have the chance to withdraw it. I am no exception to this actually. I must admit I am a reformed shopaholic! In my earlier days in Qatar, as a single professional, I don't really plan for the future and I didn't have any intention of staying in Middle East for long (or so I thought!). It was my mom who had introduced me to the art of bank loans! lol! My first investment went to a lot in our province in the Philippines and followed by  a couple more of real estate investments. Of course you might frown at the interests I would be paying in the course of 4 years, but hey! There is just no way I'd be able to save enough money to buy them cash! And the good thing is that these loans are against salary so I don't have to put my property on collateral like what they do in the Philippines!
Based on my own personal experience, specially for people raising a family, emergencies are unavoidable. Something somehow comes up come salary time. No matter how you intend to save, there is always that unexpected expense that needed to be paid for, and sometimes, it is hard to distinguish if it really is an emergency. Savings had always been put at the bottom of the priorities, thinking that somehow it would be possible to save come next salary.
Of course there are those who are able to put their bank loans to good use. If you ask most expatriates not even just Pinoys, you will learn that most have used this leverage to build a home, as what each of us have always dreamed of. Unfortunately, this is not always the case. There are cases wherein the accessibility of these loans have just caused problems to the expatriate. Specially those who are not prepared and have not properly planned what they would do with the money. Most have just been lured by the various promotions of the banks trying to get a big chunk of the market during the boom in Qatar's economy. It was an unhealthy competition indeed! It had been a common practice by the banks to offer buy outs on existing loans by offering a lower interest rate. The sad thing is, most people are persuaded by the very convincing and insistent bank agents trying to reach their monthly quotas. You wouldn't even have to visit the bank these days. They come to your office, to your home, day or night, even meeting you up while you do your grocery shopping!
Yes, in Qatar, bank loans and credit cards have become a way of life. I have yet to see an expat with access to loans who had not availed any of these facilities. Be it in the form of personal loan, car loan or credit card. The sad thing is, some have been flooded by these loans, availing of credit cards from all the banks who would give them, personal loans used to pay off those maxed out credit cards, or a vehicle loan for a car as status symbol on the road. What with the convenience of availing these loans! So long as your company provides you with the letter to the bank, taking a loan is as fast and easy as a wink of an eye. Personal loans are released in 2 days, car loans released same day as long as you have complete documents! You don't even have to go the the bank, the bank comes to you!
Most have reached a point of drowning, some even have been sued by their bank creditors and are currently unable to leave the country as they have been put on hold departure list by the court. These loans which are supposed to serve as leverage had now become a plight for most expatriates, and most expats dealt with them the only way they know how --- to default!
Good thing in this country is that the government cares. In the recent months, I have been reading in the papers about surveys being conducted on the subject. Initially I observe that most of the interest is for the locals, how the younger generation are not properly trained on personal finance and how many of the locals have been defaulting on their obligations. Then it had spread far and wide to cover the expatriates and the unhealthy competition of the banks which is unwittingly putting the ordinary worker in a bind. It is of course not the banks' fault. However, I personally think that they have also in a way taken advantage of the inexperience of the common expatriate.
Thanks to the Qatar Central Bank  for stepping up. As the agency having the appropriate authority over the issue, it had stepped in to somehow curb the growing problem of unserviced loans in the country. Since Sunday of this week, the Gulf Times, The Peninsula and Qatar Tribune (and I'm sure even the Arabic Newspapers) have all bannered stories on the new regulations to be implemented for all bank loans. Below are some of the salient features of this regulation which applies to expatriates and which could also be found in today's edition of Gulf Times, page 7.
Personal Loans - Maximum loan amount is QR400,000.00 payable in 48 months with an interest capped at 6.5%. The maximum loanable amount will apply regardless if the expatriate is eligible for more based on his salary.
Car Loans - Banks will finance only up to 80% of the car's value, although the regulation is not clear on how the car companies will deal with the other 20%. (could either require a down payment from the customer or the company could cover under in house financing, I'm not sure!). Mortgaged cars also may not be brought out of the country.
Credit cards - Banks will issue only to those who hold salary accounts with them. Those which had been previously issued to expatriates not holding salary accounts will not be cancelled but will not be renewed once they expire. The credit card limit will be capped to twice the gross salary of the holder. Maximum interest rate is 12% per year.
Guarantee Cheques - usual practice of demanding guarantee cheques from its customer is no longer allowed. Banks must ensure that they collect the payments only either from the salary or from any amounts deposited in the account.
The above regulations apply to new and existing loans so I would suggest that those who have existing bank loans go visit their banks and ensure that their loans are recalculated based on the reduced interest rates as soon as possible. You don't want to miss out on this opportunity to cut a big amount on you are currently paying to cover the interest. That's what I will do!