People often confuse a professional loan with a business loan. There is a difference between the two. Professional loans, unlike personal loans, are offered to working professionals like doctors, lawyers, chartered accountants, etc. On the other hand, a business loan is extended to businessmen who are looking to expand their business. Professionals get these loans either to set up their practice or to expand their existing one.
Why Is There A Separate Loan Category For Professionals?
Professionals like doctors, chartered accountants and engineers have different financial needs than that of businessmen. The needs of professionals also vary depending on the profession they practise. For example, the financial requirements of a lawyer will be different compared to that of a doctor. In the case of a lawyer, he/she might require funds to open a new office branch and for a doctor, he/she might need funds to buy high-technology equipment. The loan amount for both these needs vary greatly. This is the main reason why there is a separate category for professionals, catering to the financial requirements of individual professionals.
Professional loans are tailor to meet the individual needs of the professional taking the loan. Therefore, professional loans differ from that of a business loan to some extent. Business loans are mostly taken to expand the business whereas professional loans are taken to fit the specific needs of the business.
Lenders that offer professional loans consider not only the financial needs of the practice but also check the professional’s eligibility by accessing their professional degree/diploma, working experience, reason to get the loan, among other factors while granting a loan. Another main factor that distinguishes business and professional loans is the ease of availability. Professional loans require minimal documentation and are readily available for eligible individuals. Professional loans are available at low interest rates and have a much lower processing fee than that of personal loans.
Things To Note While Applying For A Professional Loan
There are a few things that you need to keep in mind as a borrower before you get a professional loan. Some of them are:
- Minimum and maximum loan amount offered: Each bank and NBFC has a minimum and maximum loan amount offered. Make sure to check this in their respective website to see if it meets your loan requirement needs.
- Assess your monetary needs: It is crucial to know how much money you have to borrow to fulfil your financial needs. For instance, if a doctor wants to start his/her practice, the funds needed will be different than that of the funds needed in case a CA wants to start his/her practice. Usually, the former would need a higher loan amount due to expensive medical equipment, medicines, etc. Hence, it is advisable to know exactly how much you need before reaching out to any lender.
- Compare various interest rates: Each financial institution charges a different rate of interest for their professional loans. For example, CA loan interest usually ranges from 10%-18% p.a. The higher the rate of interest, the higher is the interest outgo. Therefore, make sure to compare different interest rates of different loan providers and choose the one that provides the least interest rate on professional loans.
- Processing and foreclosure charges: Processing fee is a one-time charge that you have to pay to the financial institution for processing your loan application. It varies from lender to lender. Therefore, choose a lender that has a low processing fee. The income is uncertain when it comes to professionals. The business can be booming in January and might hit a slump in February. So, you might want to foreclose or prepay your professional loan in January. That being said, foreclosing or pre-paying your loan might attract a penalty. Therefore, it is crucial to choose a financial institution that charges no or minimal pre-payment charges.
- Credibility of the lender: Make sure to check the reliability, credibility and reputation of the lender choosing the lender for the professional loan. This is crucial to ensure that you do not face any financial issues or legal liabilities during the tenor.
- Availability of online process: Pick a lender who offers a contactless and online loan application process. Facilities like digital payments, mobile application, online application, etc., makes tracking loan processing and repaying the loan easier.
- Approval and disbursal time: As a professional, you might know that time and tide waits for no one. Therefore, you need to have easy accessibility to funds when you need it. Make sure to choose a lender that provides quick approval and disburses the funds in a short period of time.
- Collateral needed: Usually, professional loans are unsecured loans that are available without any collateral or security. That being said, some lenders might ask you to present a security before getting the professional loan. Therefore, before you choose a loan provider, make sure to check if collateral is needed and if you can provide it.
Eligibility Criteria For Professional Loans
The basic eligibility criteria for getting a professional loans are:
- Between 25 and 65 years of age
- Have a good credit history and score
- Must be an Indian resident
- Have a professional degree or diploma in that particular field
- Must be self-employed
Documents Required For Getting A Professional Loans
The following documents need to submitted while applying for a professional loan:
- Identity proof
- Address proof
- Bank statements and income tax returns
- Professional qualification evidence
- Work experience proof
A professional loan like a doctor loan in India can help support the aspiration of self-employed individuals in a lot of ways. These loans score higher than any other loan schemes available in the market due to their customised approach and benefits. Just make sure to compare the loan amount, interest rates and terms of different loans before you apply for the loan.