The main objectives of the study was to assess the impact loan policy on financial performance private commercial bank in Ethiopia and the specific objectives of the study would be to assess the loan term and condition policy, loan lending policies, loan monitoring policies, loan collection policies, and loan default management policies and their effects on the financial performance. The scope of the study would be limited to six selected experienced private commercial banks in Ethiopia. The research design used both descriptive and explanatory research design. The target respondents were the general loan directorate manager and loan officer which total respondents were 118. To obtain a representative sample, the study used a purposive sampling method to sample loan directorate managers of selected private commercial banks of Ethiopia and a simple random sampling technique to select loan officers. Descriptive and inferential statistics would be analyzed by using the Statistical Package for the Social Sciences (SPSS). Data collected through primary and secondary sources. There were a moderate correlation between loan policies and financial performance. Loan term and condition policy, loan lending policies, loan monitoring policies, loan collection policies, and loan default management policies were positive and significant effect on the financial performance of the selected commercial bank in Ethiopia. The researcher recommended that private commercial banks to revise their loan policies in order to make loan funds available to their retail and corporate customers, to control loan diversion, providing training to manager and loan officers, carry out adequate financial analysis and reduce interest rates as a way of reducing loan defaults, commercial banks develop their own website and system related credit management. The study suggests that further study should be to investigate the effect of various loan policies in influencing the borrower's decision and major factors to prepare loan policies.