Six Mistakes Doctors Make while Applying for Loans

In comparison to the business-centric community of retailers, wholesalers, restaurateurs, petrol pump owners and exporters who regularly look into their books of accounts, most doctors are less aware of financial documents. Journals, ledgers and supporting vouchers are things that mainstream businessmen have to deal with on an everyday basis. But not all medical professionals remain knowledgeable of the intricacies of running a business.

Even when it comes to applying for a commercial loan, the professionals in conventional trade practices and those with a background in finance are better acquainted with the terms used in the credit industry. They usually know what usages like secured loans, unsecured loans, collateral and hypothecation of collateral mean and the factors that influence the credit rating of borrowers. However, the medical practitioners too may need a doctor loan and should be aware of the factors based on which they can choose the best lender.

Due to their high earning potential and the stability of job, doctors readily get loans from multiple sources. A professional loan for doctors can come from private banks, public sector banks, non-banking finance companies or private money lenders. These loans are granted for different reasons such as the setting up of a new independent clinic, expansion of an existing clinic, purchase of medical equipment like X-Ray/MRI/CT scan machines, beds for patients and other advanced facilities. With just an elementary knowledge of the financial products and so many avenues to get loans from, the medical professionals can make some mistakes when they borrow from institutional lenders. Some of the common ones are:

1. Failing to compare alternative sources

The ease of getting a doctor loan from any source can make the borrower complacent. And a mistake at the very first stage proves costly when the repayments on the loan are made. Doctors can be lured by the heavily advertised low-interest rates and they often do not realise that there are lenders who, despite a seemingly higher interest rate, offer better credit products.

It does not take much time to make a quick comparison online. Who has the easiest loan application and disbursal process? Can the loan be taken for a short term? Which lender is willing to customise the credit underwriting process for doctors? These are some queries that need to be answered before availing a professional loan for doctors. Some borrowers are not aware of the FinTech companies that have surpassed banks in terms of flexible lending policies. So it is essential that all possible avenues are explored well before arriving at a conclusive decision.

2. Being unaware of the hidden charges

A loan comes with interest that is paid in the equated monthly instalments (EMIs). However, that interest is not the only cost of a loan. Doctors often forget to look into the processing charge, insurance premium charge and other hidden charges of their loan.

A processing charge is levied by all institutional lenders, although the FinTechs’ fee in this regard is lower as their loan applications are processed digitally. The insurance premium charge is added to the loan cost to insure the loan against payment defaults by the borrower. Other hidden costs may include documentation charges, collateral inspection charges, legal fee and charges to change the loan tenure. Most FinTech companies do not levy these charges. For the most part, their prepayment penalty is also less than that of banks.

3. Not checking the CIBIL credit score 

Doctors could be too busy to look into their credit ratings and many of them may presume that they have good scores. But that is not always the case. TransUnion CIBIL is a credit information company in India that maintains the largest collection of consumer and business information. This implies that credit scores are maintained for both individuals and businesses based on their promptness in paying bills and making loan repayments.

Anyone interested in availing a personal or business loan should check their business’s credit rating to know the possibilities of approval of the loan. This is also necessary to ensure that all information used in calculating the score is accurate and up to date. The agency should be requested to rectify the incorrect data. A score of 700 or more usually qualifies a doctor for a loan.

4. Pledging collateral in a market where unsecured doctor loan is available

While applying for doctor’s loan for clinic upgrade, a doctor may be asked to hypothecate the clinic premises as collateral to the lender. Despite their creditworthiness and the ability to pay back the principal with interest on time, doctors pledge the asset as security, unaware of the fact that there are other options.

The FinTech companies have opened a new avenue in the credit domain where unsecured loans are available for businesses, schools and professionals, including doctors. Such companies evaluate all the documents proving the creditworthiness of an entity and also employ advanced computer programs to study the same. This is done without asking for any kind of collateral.

5. Unnecessarily spending time in visiting offices when the application can be sent digitally 

Doctors are hard-pressed for time. Some of them attend patients in more than one hospital and have their private clinics too. They may neglect their patients and waste valuable time if they are forced to make regular visits to bank branches and offices of other institutional lenders to apply for loans.

Right from applying for loans to receiving the fund in the bank account, everything happens online in the world of FinTech companies. A doctor need not spend more than 10 minutes in sending the digital application along with the scanned copies of supportive documents through a secured website. The decision is given in minutes and the loan is sanctioned in 48-72 hours on the approved applications.

6. Not sending the complete documents 

One hindrance that can delay the approval of a loan is not sending the complete set of documents required by your chosen financial institution on time. The lender needs to verify the IMA registration of the doctor, the KYC papers, the bank account statements, the IT returns copies and Form 16 A issued by the hospitals (for consulting doctors) to evaluate an individual’s ability to pay back. By withholding some of these papers, doctors can slow down or impede their own chances of getting a loan.

If you are a medical professional planning to apply for a loan, steer clear of these six mistakes to increase the possibilities of getting the desired funds in the shortest possible time

Note: Financial laws are different for every country. This detailed article is for Indian Audience. Still ask your Accountant before taking any action.