Medical practitioners may require additional funds during various circumstances. For instance, there may be a need for clinic expansion or new medical equipment. At times like this, a loan for doctors is one of the best ways to steer clear of any financial shortcomings. Their unsecured nature with no end-use restrictions makes them well suited for a growing number of professionals.
However, as tempting as they may sound, there are certain things that one should consider before applying for a doctor’s loan. One such thing is the doctor loan interest rate. Since the affordability of a loan depends on the interest rate, individuals must know what factors lenders consider before deciding on the interest rate.
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Listed below are a few of them:
- Borrower’s income
Income is another crucial factor that heavily affects doctor loan interest rate. It is obvious to lenders that individuals with a high income can repay a large amount. Subsequently, a high income boosts the confidence level in the lenders.
It is usually seen in the lending sector that individuals with a higher income bag a lower interest rate. On the other hand, lenders tend to levy a high interest rate on lenders with a low monthly income.
While individuals can’t always control their income, they can try and maintain a steady income flow. A longer income history with stability catches a lender’s eyes.
- Credit/CIBIL score
Doctor loans are typically unsecured in nature. In consequence, the first thing that lenders consider before deciding the interest rate is the borrower’s CIBIL score.
Despite the importance of CIBIL score in the lending scenario, a report by Home Credit India states that 68% of loan takers are unaware of their credit score. This raises several areas of concern for such borrowers, as financial institutions search for a creditworthy borrower with a CIBIL score of at least 750+.
A lower credit score may eventually lead to loan denial. In addition, if a borrower’s credit score is average, the rate of interest will be higher. That being said, it is crucial to know what should doctors with a low credit score do to build a robust CIBIL score.
- Repayment tenor
Most lenders offer flexible repayment tenor to the borrowers. Individuals choosing a shorter repayment tenor will have to pay higher EMIs than those choosing a longer tenor. However, choosing a shorter tenor significantly decreases an individual’s total interest outgo.
Therefore, choosing a shorter tenor will help individuals save on the interest component by ensuring that they are not paying the interest for a long period. However, a shorter tenor will subsequently increase the monthly installments.
To decide on an ideal repayment tenor, borrowers can use an EMI calculator. This free online tool helps in calculating monthly instalments according to the selected loan amount and tenor.
- Borrower’s debt-to-income ratio
Suppose a medical practitioner’s monthly income is relatively high. However, a majority of the income is used to repay existing debts. In such a case, all the previous debts of that doctor will affect the loan’s interest rate.
Debt-to-income ratio is calculated by dividing all debt payments by an individual’s total income. Therefore, a higher debt-to-income ratio would mean more obligations. The more the obligations, the more the lender tends to charge a higher interest rate. This is why it is important to know why doctors need to have effective business skills to run their practice.
- Relationship with the lender
Trust and loyalty with a lender is another factor that can substantially affect the doctor loan interest rate. Lending institutions are usually more lenient in terms of interest rate when lending to a trusted borrower. A good relationship with the lender can also reward the borrower with certain benefits and privileges.
Apart from the above-mentioned factors, several other factors may affect the doctor loan interest rate. For instance, individuals’ negotiation skills can also result in a lowered interest rate. Nonetheless, knowing all about the factors affecting the interest rate can prepare you before proceeding with that clinic expansion that you had been thinking about for a long time.
For example, certain NBFCs across India, like Bajaj Finserv provide pre-approved offers to existing borrowers, which help streamline the application process. These offers are available across various financial products like personal loans, professional loans, business loans, etc. You can check your pre-approved offer by simply entering your name and contact details.