Need a cash fix? A loan might be a useful borrowing tool to consider. A loan is an amount that you borrow from financial institutions like a bank, financing company, leasing company, or an investor— usually over an agreed period at a fixed interest rate. There are many kinds of loans available such as personal loans, vehicle loans, business loans, mortgages (home loans), student loans and more.

However, to practice smart lending and to avoid falling into a loan trap, you should familiarise yourself with the type of loans available and their attributes. All financial institutions’ issued loans in Cambodia are governed by The National Bank of Cambodia (NBC).

What are Loans?

Loans are commonly characterised by four main aspects—principal, interest, instalment payments and term.

Principal

Represents the amount of money borrowed from a lender

Interest:

It is a cost paid in addition to the principal repayment

Instalment payments:

Repayment in portions, typically at a fixed amount monthly.

Term:

Loan term is the time period given to repay the loan in full.

Loans come with certain conditions such as age limit, citizenship, income, collateral, educational background, employment proofs, address proofs, etc. These requirements differ by financing institutions. Let’s run through the different type of loans in Cambodia..

What are the Different Types of Loans?

Personal Loan

A personal loan is an unsecured loan granted for personal, family, or household use. Unlike a business or general loan, you don’t need to provide any collateral or guarantor to apply for the loan. It is a fast and convenient service with a credit limit up to 3 times your basic income with credit term of up to 60 months, depending on the bank. Anyone aged 18 and above can apply for this loan to fulfill their personal spending needs, such as buying a new television, new phone or even travel.

You need a few documents including, the National Identification Document, Proof of Income, Bank Statement, and some other documents that differ from bank to bank.

Features of Personal Loans:

• No collateral or guarantor required
• Tenure up to 60 months
• No charges for early settlements
• Flexibility according to cash flow
• Flexible interest rates

Home Loan

A home loan is a long-term secured loan that allows any qualified individual to own a house that is already built, in the midst of building, or pending construction.

Typically, you can borrow up to 70% of the house price. Since the loan is granted using your property title as a collateral, therefore the interest rates are comparatively more affordable.

Before applying for a home loan/mortgage, make sure that you can afford to repay it as per agreed terms, or it may result in foreclosure of your home.

General features of home loans:

• Loan amount granted typically up to 70% of house value
• Loan commonly disbursed in USD, but KHR may also be available
• Property title required as collateral
• Maximum tenure ranges from 10 – 20 years
• Flexible repayment methods

Documents typically required by banks for home loans in Cambodia:

• National ID/Passport
• Documents on income proof and debt payment capacity
• Documents on the property to be purchased such as the Sales & Purchase Agreement or quotation
• Documents on collaterals (property titles)

Education or Student Loan

A student or education loan is an unsecured loan provided by almost all Cambodia banks and some microfinancing institutions.The loans provided by banks are based on merit and academic performances.

Here are some of the details about student loans in Cambodia:

• No collateral is needed for student loan
• The credit limit is between $600 to $100,000 depending on the education program or the fee structure. The loan amount cannot be more than the total fees.
• The repayment period goes up to 7 years. The loan period is based on the total duration of the course plus a maximum of 12 months. If your course duration is less than a year, then your loan period would be two times of the whole course.
• Interest rate falls between 0.79-0.9% per month
• No prepayment fee
• No banking charge

You can repay the student loan using a few different options:

• Start paying the loan amount and interest from the very first day.
• Start paying the interest from the very first day and pay the principal amount after completing your education
• Pay nothing until you complete your education and start paying afterwards.

Although a loan is viewed unfavourably as a financial risk, it can make good financial sense when used to fund larger purchases, debt consolidation or emergency spending. Assess all available loan plans to save yourself from a loan trap. Practice due diligence to understand the nature of various loans and check if you’re financially ready to afford more debt.