Personal loans are a great option for those looking to make a big financial decision in their life. It could be buying a new car, planning a wedding, going on a vacation abroad, paying for higher studies, or getting a new home. Personal loans offer secured debt consolidation as they cover tons of financial needs. While taking out a personal loan is pretty straightforward, you should consider some key aspects before going for one.
Things to Consider Before Taking Out a Personal Loan from a Bangladeshi Bank
Purpose of the Loan
Personal loans are mostly taken as a form of investment source. It can be debt consolidation or a major investment for future benefit. Regardless, a loan means incurring a liability until it is paid off. It is important to properly assess whether taking the loan is a feasible decision or not.
It is also important to consider alternative funding sources like personal savings, emergency funds, or borrowing from family.
Interest Rate
One of the prime things to consider is the interest rate accrued to the loan capital. Currently, Bangladesh Bank has a regulation in place that outlines the upper limit that can be charged by the banks. The Bangladesh Bank interest rate regulation can be checked from the lending rate of scheduled banks (https://www.bb.org.bd/en/index.php/financialactivity/interestlending).
Additionally, a borrower can use websites like aamartaka.com to compare the rates among banks, check eligibility criteria, and even apply through their designated channels.
Understand the Eligibility Criteria
The first thing to consider while applying for a personal loan is to understand the eligibility criteria. Personal loans can come in both secured and unsecured options. Granted that the unsecured options will incur a higher interest rate.
However, most banks require a set of eligibility criteria for one to apply for a loan. For example, the valuation of collateral against the loan or the liquidity level of the applicant. Other aspects like personal history verification, job verification, income, and salary credit account can also be the eligibility criteria depending on the lender. Another key aspect is the history of bankruptcy or loan default which might disqualify a person from applying for a personal loan.
Have a Good Credit Rating
A credit history is one of the key determinants of loan disbursement abroad. One can’t even apply for a credit card without a stable credit rating, let alone a personal loan. Credit rating determines the creditworthiness of an individual, that is how likely they are to repay a loan based on previous credit history.
There are several credit scoring systems globally like FICO score and VantageScore. However, in the case of Bangladesh, the banks and NBFIs do not follow a set credit score while approving loans. Alternative credit scoring like asset ownership, utility payments, device data, and rental payments are taken into consideration. It is mostly because a large portion of the demographic is unbanked or underbanked to make credit scoring the sole determinant for loan approval.
Assess Every Cost Involved
Personal loans or any loans in general have several costs like processing, prepayment, and late payment fees which might be outlined in the fine print. It is important to assess all these costs as they might often get disguised as hidden charges.
Your loan payment estimate may be significantly inflated if you do not consider these charges.
Terms of Repayment
Consider what the repayment term is. The repayment terms differ based on the amount of secured or unsecured loans. Lenders will offer shorter or longer repayment terms which might or might not be negotiable from your end. But as a rule of thumb, try going for loans that offer a shorter repayment term. Because if you go for longer repayment terms, you inevitably end up paying more interest over the capital than a shorter term.
There is also the prepayment penalty to be considered where early repayment of the entire loan may accrue additional cost.
Choose the Right Amount of Loan
Choosing the right amount of loan ties in with the point of understanding why you need the loan. Consider clearly defining your loan needs. There might be several expenditure options at hand. You can decide which head you plan to finance with a personal loan and calculate the overall estimate of the costs to deduce your loan amount. If you are still unsure about the exact amount, consider going for flexi personal loan schemes.
Loan Approval Time
There is no exact loan approval timeframe regulation in Bangladesh for both government and private commercial banks as well as the NBFIs. However, depending on banks, the loan approval time can be anywhere between 5 days to two weeks.
If you require emergency approval, contact several banks to check which one offers the fastest approval. But beyond the approval time, consider the loan terms first before borrowing.
Employment Stability
Employment stability plays a big factor in the eligibility criteria for personal loans. In addition to the eligibility, you will need a stable income source to be able to pay off the repayments throughout the term.
Cosigner Requirement
If your credit score is low, you might need a cosigner. Ensure that you have someone who can fulfill this role. It is important to understand the risks and responsibilities of the cosigner, as they will be equally liable for the loan.
Final Words
A personal loan is a great way to finance the next big step in your life. It’s a secure way to realize investment opportunities even with a lower capital means. However, personal loans from Bangladeshi banks come with rules, regulations, and potential shortcomings. Prepare to conduct thorough research on the likely schemes before applying for a personal loan from any bank in Bangladesh.
Source: UNB
Bd pratidin English/Lutful Hoque
