As a doctor, you’ve been required to learn endless amounts of information, procedures, and techniques throughout your education and training. But did your medical school, dental school, or residency ever teach you about personal finance? Luckily, our team of doctors at DOC2DOC is here to answer some of your biggest questions, simply. We want you to fully understand what a doctor loan from DOC2DOC Lending can do to help you achieve your financial goals.
What is a personal doctor loan, and do I need to put any collateral down?
Personal loans are forms of credit that give you the money for important things in your life, whether it be travel expenses, medical bills, childcare, or credit card consolidation. A doctor loan from DOC2DOC Lending is an uncollateralized personal loan, meaning you put nothing on the line when you get the loan.
Compare this to a collateralized loan, which requires the borrower to give an asset – such as a car or a house – to the lender as a form of security. As a result, uncollateralized loans from DOC2DOC may have a higher interest rate than a collateralized loan. Our only security for loan repayment is your financial and professional history.
What is an interest rate? What is an APR? How are they different?
An interest rate is the annual cost to a borrower of holding a loan. It is expressed as a percentage of the value of the loan. Here we demonstrate how to calculate the amount of interest you have to pay in one year using your principal loan amount and interest rate.
APR stands for “annual percentage rate.” APR is similar to interest in the sense that it is a percentage of the value of your loan, but APR gives a more realistic view of how much you pay each year. APR includes the amount you pay in interest along with other charges and fees involved with getting the loan. Thus, the APR is typically a higher percentage than the interest rate.
How is an APR determined?
At DOC2DOC, we understand that many doctors and dentists may have pre-existing debt accumulated through years of schooling and training, as well as promising outlooks of financial success in the future. Thus, taking these physician-specific criteria into mind, loans from DOC2DOC tend to have more favorable interest rates and lower APRs.
Typically, APR for a personal loan from another source is determined by a multitude of factors—financial history (credit score, income, pre-existing debts), size of the loan, and the term of payment. DOC2DOC takes all these into account, along with your medical background.
What is a debt-to-income ratio?
This ratio is a monthly indicator of how well you can manage monthly debt and thus how able you are to make payments on a loan. The debt-to-income ratio is calculated by dividing the amount of debt you owe each month by your amount of income in that month. High debt-to-income ratios indicate decreased abilities to make payments on loans, thus leading to higher interest rates and APRs.
What is free cash flow?
Free cash flow refers to the amount of money you have left over each month after paying all necessary expenses. High amount of free cash flow indicate more money that can be used to make payments on loans, and thus typically lower APR and interest rates on those loans.
What is the principal amount?
The principal amount is the initial amount of money the loan is worth, and can also refer to the amount still owed on a loan after each monthly payment.
What is the term of a loan?
The term refers to the amount of time a loan will take to be completely paid off, given that the borrower continues to make regular monthly payments.
What is a monthly payment?
The monthly payment is a set amount of the loan that is consistently paid off each month. It is calculated using the principal amount, the term of the loan and the interest rate.
What is a credit score? What is a FICO score?
Your credit score is a numerical representation of creditworthiness, determining your likeliness to pay back a loan. The FICO score is owned by the Fair Isaac Corporation which provides consumers with a measure of their credit risk. A FICO score is one of the more common credit scores, but note that it is not the only one.
How are FICO scores determined?
FICO scores are generally determined based off of five different categories:
- Payment history
- Amount of credit owed
- Length of credit history
- Diversification of credit
- Timeline of opening accounts
How can I boost my credit score?
Boosting your credit score is a very broad topic, and there are multiple ways to do so. The easiest is to focus on the five key factors that go into determining your credit score:
- Always pay your credit cards on time – consider scheduling auto-payments for at least your minimum so you never miss payments.
- Use reasonable amounts of credit. Using high amounts of available credit can seem riskier to the bank and thus damage your credit score. Whereas small amounts of credit utilization can be beneficial. Credit-card debt consolidation through a DOC2DOC loan can help you pay off outstanding debts. As a result, you can receive a lower interest rate for repayment than what the credit card companies would charge.
- Keep credit cards open, don’t close old cards. Even if you don’t use them anymore, keep them open (as long as you are not paying annual fees!). Longer credit history generally improves credit score.
- Diversify your credit so it isn’t all based on credit cards – a DOC2DOC Loan is a great way to diversify your holdings.
- If you’ve opened a new credit card within the last 6 months, don’t open any more. banks usually deem it risky to open several accounts within a small amount of time. Improving your credit score is a long game, so don’t flood your account with a lot of new activity all at once.
Many companies exist that focus specifically on helping people improve their credit scores. If you feel you need their assistance, we recommend doing your research and choosing the program that meets your needs.
Why doctors need financial education
Just like when you were preparing for grand rounds, having financial terminology in your back pocket is a useful bit of knowledge that you will need at very important times. Choosing the right financial products can save you multiple thousands of dollars throughout your professional career. We recommend you commit these concepts to memory and use the knowledge here to make smart financial decisions while consulting with a financial professional.
And let us know if you want to talk about physician personal loans tailored to meet your specific needs!