Physicians who run into a need for cash often wonder what the best way to access these funds may be. Similarly, many doctors, especially those coming out of training, carry high interest debt such as credit card debt which can be difficult to pay down due to the high interest rates. While personal loans have many advantages in these situations, it's important to consider whether they're the best option. Whether or not a personal loan is the right option will depend on a number of factors, including the interest rate, the term of the loan, the conditions on the loan, and what other options are available. Below, we’ll discuss how to think through this.
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Personal loan resources and perks for doctors
Doc2Doc Lending has partnered with Physician Side Gigs to provide physicians with fast access to personal loans. It's a novel lending platform created by doctors, for doctors. Rather than evaluating potential borrowers based purely on one’s FICO score, Doc2Doc’s algorithm considers doctor-specific factors to gauge one’s creditworthiness, and ultimately, to generate more favorable rates than are typically available at traditional banks. Use our affiliate link if you want to apply, as it will provide you with a $100 cash rebate with any newly funded loan, a 0.25% discount if you use auto payment1, and your first payment due date held for 30-45 days.
Doc2Doc Lending products are made available by DR Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. DR Bank may sell, assign, or transfer ownership of your loan to another party after the loan funds. The borrower will receive notification if and when any such sale, assignment, or transfer occurs.
1 Subject to the terms and conditions of your Credit Agreement.
Credible also offers options for personal loans. Explore options available through our affiliate link.
What is a personal loan?
A personal loan is a loan that you can use to borrow money for almost any need. It is usually uncollateralized / unsecured, which means that there is no object for the lender to use as collateral if you don’t pay the loan back. Because of this, these types of loans tend to be on the riskier side for lenders, and in accordance with risk adjusted returns, the interest rates associated with these loans tend to be higher than mortgage loans, which allow the bank to reclaim your house if you don't make your payments.
Some banks do offer secured personal loans if you have a car, house, or bank account that they can use as collateral, in which case these interest rates may be lower. Of course, your personal risk goes up in this situation if you are not able to pay back the loan according to the terms of the loan and on time.
What are the pros of personal loans?
One of the biggest pros of a personal loan is that you can get a personal loan for almost anything. The interest rates on these loans are often lower than credit card debt, so if someone doesn’t have significant equity that they can borrow against elsewhere (like a HELOC or an investment portfolio), this could be favorable from an interest perspective. Additionally, personal loans can be deployed fast, even as fast as within a day or two depending on the company and underwriting needed.
What are the cons of personal loans?
Because these loans are unsecured and usually available very quickly, personal loans often have higher interest rates that reflect the risk that the lender or lender sources take on by offering an unsecured loan. Particularly for those with bad or unfavorable credit scores, the rates can get very high and approach that of a credit card. Personal loans can also have conditions attached to them like prepayment penalties or large origination fees that make them less attractive than some other funding sources.
What are some examples of when physicians may consider taking out a personal loan?
We have seen many examples of doctors in our physician communities taking out personal loans. A very popular one is to pay off higher interest credit card debt. Another common use amongst physicians is at transition to practice points such as between graduating from medical school and starting residency or graduating residency and receiving your first attending paycheck, when you have costs associated with moving, health needs when underinsured, or want to travel a little before starting the next chapter.
Other physicians use personal loans for practice buy-ins, weddings, home renovations, unexpected healthcare costs, or infertility treatments. Some have used them to pay taxes owed when hit with an unexpected tax bill (though you should always see what your options are through the IRS are for payment plans in this situation as well).
What are situations where taking a personal loan makes the most sense?
Typically, you’ll want to consider personal loans when the interest rate is the most competitive offer you can get or to pay off higher interest debt than the interest rate you are getting for the personal loan, when you don’t have collateral like equity in your home or investment accounts that you can borrow against, or when you can’t qualify for a zero or low interest rate credit card that defers interest accumulation for a period of time that’s longer than when you can pay the loan back.
With credit cards typically having interest rates in the mid 20s in 2024, and personal loans having interest rates that are about half of that on average, if you can qualify for a personal loan and use it to pay off credit card debt that is at a higher interest rate, it makes sense to do so, as you’ll be able to pay the debt off faster at the lower interest rate. Keep in mind that you should first look into balance transfer options that allow you to extend your interest free period on a credit card by transferring your balance to a new credit card.
When should you NOT use a personal loan?
Do not take out a personal loan to buy things you cannot afford, unless you know your cashflow problem is short lived and you have a unique situation where it makes sense to spend the money now. The classic example that many on the physician community are okay with is a graduating trainee who has some time before starting their first attending job and wants to travel. In this situation, while we don’t encourage racking up tons of debt, it may make sense to take out a loan if you don’t qualify for a low interest rate credit card, knowing that you’ll be able to pay it back quickly in a few months and that opportunities to have months off at a time don’t come up often in a physician career.
In general though, we encourage creating a budget and living within your means instead, as it’s dangerous to get into a cycle where you borrow money every time you want something you don’t have the cash for (the debt spiral).
Do not take out a personal loan when you have lower interest rate options available to you.
What determines how high my interest rate for my personal loan will be?
This will depend on some extent on the lender. For physicians in particular, there can be quite a bit of variability as some lenders take into account that physicians tend to be good borrowers who tend not to default on their loans (see our resources below). For example, most lenders will consider debt-to-income ratio, but lenders tend to be more lenient to doctors for this as physicians tend to have high student loan debt but still tend to be great borrowers. This is also why products like physician loans exist in the mortgage space. Most lenders will consider your credit score regardless of who you are.
What are alternatives to personal loans?
There are several alternatives to consider to personal loans when considering the pros and cons listed above. These include using a 0% interest credit card or low interest credit card for your purchase(s) and taking out a line of credit against your home (HELOC) or investment portfolio. And then of course, if you happen to be lucky enough to have friends or family that would be willing to lend to you for free or at a more reasonable interest rate, that’s another option as well.
Where can I get a personal loan?
If you’re considering a personal loan, we have partnered with companies to provide PSG members special perks and discounts:
Doc2Doc Lending provides physicians with fast access to personal loans. Use our affiliate link for a $100 cash rebate with any newly funded loan, a 0.25% discount if you use auto payment1, and your first payment due date held for 30-45 days.
Credible also offers personal loans. Explore their options through our affiliate link.
Doc2Doc Lending products are made available by DR Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. DR Bank may sell, assign, or transfer ownership of your loan to another party after the loan funds. The borrower will receive notification if and when any such sale, assignment, or transfer occurs.
1 Subject to the terms and conditions of your Credit Agreement.
Conclusion
Personal loans have pros and cons, and whether one is right for you will depend on how long it will take you to pay it back, what the fees and terms and conditions associated with it are, and what your alternative options are. Know that personal loans aren’t the cheapest option for borrowing money, but offer convenience and flexibility that other secured options don’t always offer. No matter what, don’t use the personal loans to finance things you can’t afford, as this is a slippery slope to falling down a debt spiral that can be very hard to get out of, as well as jeopardizing your ability to build your net worth.
Additional resources for physicians
Explore related PSG resources: