In what way would loans for doctors differ from otherwise available ones? The answer is – It’s all packaging. They are not at all different.
One possible difference is that since you are a doctor, your profession is comparatively secure, and the lender has confidence in your ability to repay the loan, they may give you a better rate of interest.
But from the ‘doctors as a borrower’ point of view, Personal Finance management comes into the scene. And thus low rates should not be the attraction.
If something is available for free or at a low cost, it does not mean that you should go for it. You should have a reason to borrow first and then look out for lenders. Rather than falling for the sales pitches.
Even if you have a reason, you should not borrow over and above your capacity of repayment, or at the cost of compromising with the other life goals.
Managing Money is all about having a holistic view of your complete financial structure, then look at all aspects individually to figure out if they really play a constructive role in your financial wellness, and then work out an investment strategy to achieve your life goals comfortably. (Also Read: Financial Plan or Financial Planning what is more important?)
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Some goals require a higher outflow that is not manageable in the financial structure, so loans become crucial. But how much loan should be taken is the question which every borrower needs to answer.
You can’t just look at your finances in Bits and Pieces. Even if you are comfortable paying the EMIs, you need to look at the interlinkage of these EMIs with other important goals.
Plus, there are Good Loans and Bad Loans, which are Important to be defined so as not to fall into the trap of a Vicious circle of debt, and living in a fairy world away from Reality.
Loans for Doctors – How should one plan the Borrowing?
The Purpose needs to be defined very clearly, which acts as WHY behind the borrowing. You have to be sure that the Purpose is the result of emotion coming out of a desire or is actually a need.
For example, Car buying may be a need, but going for a luxury car may be a desire. Even if you can afford the EMIs, Remember, that this is not the only desire you have.
Six months later you may like to go on a foreign trip you have promised to your Wife, you may find something exciting available at “attractive prices” on amazon, for which you may like to go with ‘No Cost EMIs” by swiping Credit cards, you are habitual to Weekend outings, eating outs…all this has their impact on your expenses.
Plus, what if you are saving for your higher education, the trip to attend an important international conference. (Also Read: Financial Planning Tips Young Doctors cannot miss)
Lifestyles differ at different Life stages. Young Unmarried doctors have different expense structures, then the married ones have kids studying abroad.
Young doctors prefer spending on things like cars, Gadgets, Short travel breaks. Middle-aged doctors having a decent income profile, generally prefer collecting Real estate. They are the easy target for this asset class and buys a lot in the name of Investment. (Also Read: Why Real Estate investment can be a risky investment for doctors)
Even if you may have a genuine reason to borrow, a decent financial plan after understanding your cash flow situation and other goals, helps you sail the ocean comfortably.
I did not mention anything about the Interest rate, or EMIs because I know numbers sometimes give a false comfort or pointless fear. But understanding your Financial Plan surely gives you the confidence of going in the right direction.
Loans for Doctors – The Good and Bad Loans
From the Financial wellness viewpoint, Loans for doctors have been categorized into Good and Bad Loans.
Whenever you take out a loan for a product, service, or asset that is for consumption or depreciating, that loan is described as a bad loan. (Also Read: What is Lipid Profile in Personal Finances?)
In addition, as consumption loans are used for unproductive purposes and lost once used, they may be termed as worst loans. Credit Cards and Personal Loans come under this category.
Even converting your high personal expenses into EMIs can also be termed as Worst Loan.
These loans also have a very bad impact on your Credit Score.
Loans for Vehicle Purchase or some White goods buying are also considered as bad loans, since the moment you take that thing out of the showroom, its value goes down.
Good Loans are the ones that are taken for productive purposes like Practice Loans, Education loans for doctors, or buying assets having an appreciating value like a Home loan.
Loans for Doctors – Should you take it?
Every loan for doctors, be it good or bad, is a liability, which you need to honor regularly and on time, else your credit score will be badly impacted which has long-term implications.
And since EMIs will not be the only thing in your cash outflow, you need to have a holistic view of your financial structure and then only decide how much you can afford or should you pay.
Always remember, that with a loan you are kind of betting on your future income for present expenses. Staying positive on future growth keeps us going, but you also have to be practical enough to see the other important expenses come in a way that you may not ignore.
So, it’s always wise to save first and spend later. But if at all loan becomes a necessity, make sure EMIs (which includes the majority of good loans) should not be more than 40% of your take-home income.