What a loan really is
When you take a loan, you spend money today that you have not yet earned. In return, part of every future month’s income is spoken for in advance, and you pay interest on top. So every loan is really a question: is this thing today worth more than that money in the future?
A “good loan” is usually one that buys or builds something that raises future income or holds its value for a long time, at a cost you can manage. A “bad loan” pays for something that is used up long before the loan is repaid, especially at a high rate.
Say two friends, Tuhin and Shaon, each borrow Tk 50,000. Tuhin buys a sewing machine and starts small orders from home, and the income covers the instalments. Shaon buys expensive clothes for a wedding season and a new phone; within a year they are worth much less, and the instalments run for another year. The story is made up.
Why it matters to an investor
- Loan interest is a “guaranteed negative return”: keeping a 20% loan while investing for a 10% return actually leaves you worse off.
- Instalments crowd out saving: the more goes to instalments each month, the less is left for investing or building an emergency fund.
- To understand the risk of leverage: borrowed money magnifies gains, but it magnifies losses too, and the instalments do not stop when you lose.
- To protect your credit record: missed instalments are reported to Bangladesh Bank’s CIB, which can make later loans or credit cards harder to get.
Three questions
Even a loan with a “good” label can turn bad. An education or business loan taken at a high cost, or far larger than needed, also becomes a burden. And a loan for urgent medical treatment may not raise income, yet sometimes it is the only option.
- What will the money do? Is it buying something that will raise income (skills, business equipment) or hold its value for long, or something that will soon be used up?
- Does the benefit beat the cost? Put the full cost of the loan (interest, fees and charges together) next to the income or savings the money is likely to bring.
- Can you repay even in bad times? Could you keep paying if your income fell, you lost your job or business slowed? A loan that can only be repaid if everything goes right is a risky one.
What borrowing costs in Bangladesh
From April 2020 to July 2023, bank lending rates were capped at 9%. After the cap was lifted, rates became market-based and rose; Bangladesh Bank data put banks’ weighted average lending rate at 11.86% in June 2026.
Other borrowing usually costs more. Bangladesh Bank’s maximum credit card rate is 25% a year (from January 2025). For microcredit, the Microcredit Regulatory Authority’s maximum service charge is 24% (since 2019). Moneylenders and informal borrowing are not regulated, and often cost far more. These caps and rates change over time.
How much debt is manageable
A simple measure is what share of your monthly income goes to all your instalments. The bigger the share, the more dangerous even a small fall in income becomes. Many people set themselves a limit and check whether a new loan would push them past it.
Having an emergency fund before borrowing matters too. Without one, the first crisis means missed instalments, and the cycle of taking one loan to repay another begins.
Worked example
- Say you borrow Tk 1,00,000 for one year, with a total cost (interest and fees) of about Tk 7,000. You repay about Tk 1,07,000.
- Case A: you use it for a course, after which your income rises by Tk 3,000 a month. That is Tk 36,000 a year extra, well above the cost, and it continues in later years.
- Case B: you use it to buy a phone. It brings in no income, and after a year it may be worth half. You have paid Tk 1,07,000 for something now worth about Tk 50,000.
Result: same loan, same cost; the difference is what the money did. Even case A is only good if the income gain is realistic. The numbers are only an example.
Common mistakes
- Taking a loan by looking only at the monthly instalment, not the total cost.
- Assuming a loan with a “good” label will pay off, without checking whether the income gain is real.
- Investing borrowed money in shares or other risky assets without thinking about where instalments will come from if it loses.
- Taking a new high-cost loan to repay an old one.
Before borrowing, ask three questions: what will the money do, does the benefit beat the full cost, and can you repay even in bad times?