Best Bank Loan Interest Rate in Ethiopia 2023

Common Steps to Get a Bank Loan

Although the loan application process may vary slightly from one financial institution to the other (and from one type of loan to another), banks generally share some common steps and required documents (as do different types of loans).
Once you have found the best bank loan interest rate, follow these steps for a speedy loan application approval.

1. 1. Present Loan Application to the Bank

This must state the date of application, the loan purpose, type, amount, and conditions requested, and the collateral offered. It must be signed/stamped by the applicant/authorized personnel

1. 1. Fill out the Loan Request Application Form (LRAF)

Make sure to fill in all required details and that it is signed by the applicant and bank staff.

1. 1. Provide All Necessary Legal and Financial Documents

Ensure that the documents are as free from error as possible to avoid wasting time resubmitting files. Any sign of fraud caught at this step may also automatically result in the rejection of the loan request.

1. 1. Pay Pre-Approval Processing Fees

This may include fees to maintain the loan account, as well as credit information fee (this is to reimburse the bank’s expense when it gets your credit history from the National Bank of Ethiopia).

Note: Beware of banks that have zero processing fees as they may call for a higher rate of interest, stamp duties, and other legal charges instead.

1. 1. Have a Consultation with the Bank

This step may or may not be skipped depending on the bank’s discretion. It is a face-to-face conversation with the concerned bank authority to get more detail on the applicant and ensure that he/she can pay the principal and interest amount allocated.

1. 1. Wait for Approval

The bank will now evaluate all the submitted papers and fees.

1. 1. • The time it takes for your loan request to be processed depends on many variables such as the business nature and amount of loan taken out, the type of collateral involved, the term of the loan (short, medium, and long), the value proposition that you may provide the bank, and so on.
      • Also, keep in mind that there may be millions of other people requesting credit, and your chance of a quick loan takeout heavily depends on your place on that long list. It could take you 3 days, 3 months, or even a year to get approval.

1. 1. Receive Offer Letter

The moment the loan request is authorized, the bank will send an offer letter to the applicant disclosing the following:

1. 1. • The loan amount that has been approved.
      • The annual percentage rate/interest rate on the total loan balance.
      • Whether the interest rate is variable (usually with inflation) or fixed.
      • Information about the loan’s length of repayment date/ maturity date.
      • How the debt is to be repaid.
      • Credit terms, policies, and conditions.

Once the applicant receives the letter, he/she must check thoroughly to make sure the terms are as agreed upon before signing the acceptance copy.

1. 1. Evaluation of Property Papers, Site Estimation, or Business Plan/Stage

This step differs for business and personal loans, but the one thing they may have in common here is the technical check and/or estimation fee the applicants may be asked to pay.

1. 1. Sign the Agreement and Get the Loan!

The applicant will now sign the final agreement for the disbursement of the loan. All original copies of properties put up as collateral will be handed over to the bank. The sale of these collateralized assets will not be possible. Fees to be paid after approval may include some or all of the following:

1. • Stamp Duty: Usually 1% of the loan
   • Loan Processing Fee: Usually 0.25% of the loan. This may be paid at the pre-approval stage.
   • Revenue Stamp: ETB 5 (5 Birr). Yes, you read that right.

Personal Bank Loans Specifics

Personal loans include personal borrowing, house/mortgage loan and car loan. The bank needs to appraise the house or car that is to be bought with the loan. Accordingly:

• Once the property is selected, all the original property documents are submitted to and remain with the bank until repayment of the entire loan balance which usually state:
  1. The seller’s surname.
  2. The seller’s identification and address proof.
  3. The name of the property.
  4. The property’s address.
  5. If the seller is not the primary or actual owner, the chain of written documents.
  6. Land Holding Certificate (LHS) and approval for building purchase request.

• The bank then checks the legality and authenticity of the submitted papers. If unsatisfactory, more credentials may be mandatory.
• To take precautions, the bank usually sends property experts to evaluate the property site/vehicle to be bought or constructed. This is done to verify:
  1. The current stage of construction and work progression.
  2. The construction’s quality.
  3. Property Valuation
  4. The amount of time required to construct the house.
  5. The layout of the house and whether or not the governing authority has approved it.
  6. If the builder possesses the necessary certificates for construction on the land, and so on.

If the house is already built:

• The age of the structure.
• Internal or external property upkeep.
• The loan term and whether or not the building meets the applicant’s loan eligibility criteria.
• The construction’s quality.
• The existing mortgage on the house.
• The appraisal of real estate.
• The building’s approval plans, adherence to government regulations, and so on.

* This technical check and value estimation of the site usually results in an estimation fee.

Other Supporting Documents

• Borrower’s bank statement
• Proof of employment/income
• Marriage certificate of the seller if the fixed asset is purchased from individuals.
• Bill of Quantity for construction requests
• Renewed trade license of the seller for a vehicle without a plate number
• Mandatory deposit of 5% of a vehicle’s purchasing value, and 15% of a building’s price or cost of construction.

Interest-Free Bank Loans

Interest-free loans in Ethiopia, as far as our current intel goes, encompass only business-type loans. Since the beneficiary does not pay back the principal plus the interest, the bank instead becomes a partner to the applicant’s business and shares the profit generated. The only extra thing required here is a proforma or a list of prices at which you are planning to sell your products. This lets the bank know how much profit they can expect to see.