It is not very difficult to get a personal loan if you are a salaried employee. Not so easy for others. There are professionals who started their practice a few years back and need a loan to expand their practice, redo their office or anything else. For such professionals, there are specific loan products to cater to their need for funds. In this post, let’s look at one such product, Loan for Professionals, from HDFC Bank.
Loan for Professionals: Salient Features
- Special product for professionals
- Maximum Loan amount: Rs 20 lacs (up to Rs 50 lacs in select locations). Exact loan amount will depend on your repayment ability
- Loan Tenure up to 60 months
- No security or collateral to be provided
- Option to purchase loan protection
Loan for Professionals: Eligibility
- Doctors, Chartered Accountants, Architects, Company Secretaries and professionals involved in self practice or consulting
- Minimum age: 25 years
- Maximum age at the time of loan maturity: 65 years
- Minimum post qualification experience: 4 years for doctors and Chartered Accountants, 5 years for Architects, Company Secretaries and others
- Minimum net annual income of Rs 1 lakh per annum
- Profit making for at the least last two years. I am not sure how they measure it for professionals. As I understand, they will simply go with ITR of the applicant.
What Is the Interest Rate?
The interest rate keeps fluctuating. You can check the latest rates on HDFC bank website. The rate of interest (as mentioned on the website on October 03, 2018) will range between 12.50% to 15.65%. Clearly, the rate looks quite high in the present scenario. A salaried person may get a personal loan at a much lower rate. Well, you are not salaried. Therefore, be prepared to shell out more. Do note that this loan is unsecured. This may have pushed up interest rates a bit.
What about Other Charges?
Other charges are also quite high. Processing fee is 2.5% of the loan amount subject to a minimum of Rs 2,359 and a maximum of Rs. 88,500. To assess the impact of such high processing fee, a processing fee of 2.5% will take up the effective cost of a 5 year loan at 12% p.a. to 13.33% p.a.
There is prepayment penalty too. You can’t prepay the loan in the first six months. Pre-payment from 7th till the 24th month will attract a penalty of 4% of outstanding amount. Pre-payment in the 3rd year will invite a penalty of 3%. Any pre-payment thereafter will cost you 2% of the principal outstanding.
And yes, GST is extra on these charges.
What Are the Documents Needed to Apply for This Loan?
- Qualification proof for highest professional degree
- PAN, Identity and Address proof
- Bank statements for the past 6 months
- Latest ITR, Certified P&L for the previous 2 years
- Necessary registration and incorporation documents, if any
For the exhaustive list of eligible documents, refer to this page on HDFC bank website.
Should You Purchase Loan Protection?
On the website, it is mentioned that you can purchase loan protection plan while taking the loan. In the event of demise of the borrower during the term of the loan, the outstanding loan amount will be squared off from the insurance proceeds. The premium for the insurance plan will be deducted from the loan amount upfront. HDFC Bank offers this insurance through a tie-up with its own group insurance company, HDFC Standard Life. The insurance plan is a reducing cover plan, where the insurance coverage goes down as per original amortization schedule. While it is a smart idea to purchase a life cover while taking a big loan, you do not have to purchase it from the bank itself. It is likely to be quite expensive. I have discussed this aspect in great detail in this post on Home Loan Protection plans. Even though we are talking about a different loan product, the issues are the same. If your existing insurance and savings are not sufficient, you can purchase an additional life cover directly from an insurance company.
Let’s begin with the pros. You do not have to offer any security to avail this loan. Offering security for a loan can be a roadblock for professionals who started their practice only a few years back. Therefore, such professionals may find value in this offering. From your perspective, this product is no different from a personal loan. In fact, you could have opted for a regular personal loan. The rates for loan for professionals from HDFC Bank are quite in line or even higher as compared to a personal loan. However, it is not easy to get personal loans if you are not salaried. Since this is a product specifically structured for professionals, I would expect the sanction process to be relatively smooth.
The flip side comes in the form of high interest rates, heavy processing fee and prepayment charges.
You need to assess your options and take a call. By the way, do look at personal loan or professional loan products from other banks too before finalizing. Compare the all-in cost. Compare the flexibility. Here is a link for similar product from ICICI Bank. No major difference to write about.
In my opinion, these are the loan products where you need to do a lot of research to figure out the best option for you. For home loan products, costs and rates are easily available on websites and there is fairly low ambiguity. Therefore, if you are a professional and looking for a loan, be prepared to put in some effort.