Tips Before Applying for Loans

Oeur Sothearoath, chief executive officer of the Credit Bureau Cambodia (CBC), provides some useful tips for customers who are thinking of taking out a loan.

1. Must understand the interest rate. I believe that financial institutions do not provide a flat interest rate. So, if a customer takes out a $1,000 loan, they will have to pay both the principal and interest monthly to a loan provider. What will happen is that the principal will gradually decrease, and the interest will drop accordingly. With Cambodia’s banking system, the interest depends on the remaining debt credit, not the borrowed principal credit; I want to confirm that banks or microfinance institutions do not use flat rates. Thus, it is important for customers to understand how the interest rate works and its different types.

2. Must check the loan fee service. Customers should clarify with banks or microfinance institutions about other charges, including service and administration charges, and whether the charge is a one-off or multiple payment. Some microfinance institutions add extra charges on legislative services. Thus, customers should study the specific loan system of each loan provider.

3. Must consider loan terms. It is important to know the period of the credit payment. For example, if you apply for a three-year credit loan, you have to clarify whether it is possible to pay the debt off all at once.
   
   Issues arise when customers have not checked the conditions of full debt payment at once, as each institution has different policies. For example, if you apply for a three-year credit loan and you can afford to pay the debt all back at once, what is the penalty policy?

   Normally, the penalty condition is written in the policy document. Some institutions might have a half-of-loan period policy, meaning that if you apply for a credit loan for three years, you should use credit for at least one-and-half-years. However, some institutions have different policies, requiring customers to use credit for three months, six months or even 12 months.

I believe that these are the important conditions that customers must be aware of. If customers do not understand them, both parties will end up having arguments.

Here is a link to full interview article with Oeur Sothearoath about the loans.