How Can Borrowers Make Effective Use of Loans from Financial Institutions?

At first glance, the word “loan” may sound like something negative because it means owing money. That is true, but it is not entirely so. Borrowing for the wrong purpose can indeed be harmful. However, when a loan is used for the right purpose and in the right circumstances, it can be beneficial and help increase our income. What are the key points customers should consider to ensure they use loans from financial institutions effectively?

1. Clearly distinguish between loans that increase income and loans that lead to indebtedness.

2. Use the loan for its intended purpose.

3. Make sure the loan helps generate income or reduce expenses.

4. Have a clear financial plan, especially for using the loan and repaying it.

5. Monitor and manage cash flow to ensure you can repay the loan. Monthly repayments should not affect your day-to-day spending and should not exceed 30% of your income.

6. If you have loans from multiple institutions, rank them according to the outstanding loan balances, interest rates payable, repayment due dates and estimated repayment dates. Then use this information to make a repayment plan.

7. Use loans in line with your needs and financial circumstances.

8. If you are having difficulty making repayments, you can ask the institution to restructure your loan and negotiate with it to find a solution.

Source: Cambodia Microfinance Association