Consider all parts of the loan
When searching for the right loan, it's easy to focus solely on interest rate, but there are many important aspects of the lender and loan to be aware of.
The primary components of a loan are:
- Term
- Amount borrowed.
- Monthly payment.
- Structure (balloon versus fully amortized/variable versus fixed rates, etc.)
- Rate
- Prepayment penalties.
- Amortization
Ensure you are aware of any prepayment penalties which mean you will incur a charge if you decide to move banks. Many practice lenders use prepayment penalties to lock borrowers into their programs for up to five years to recoup the interest they need to earn.”
Choosing a bank based solely on rate could mean you are hit with a prepayment penalty if your lender isn’t equipped to meet your next need and you have to change lenders. This could negate any savings from a lower interest rate and could even end up costing you more.
Term and rate
The length of your loan will affect your rate. Loan terms are often 10 years, but 12- and 15-year terms may be options as well, depending on the situation.
How does loan term impact interest rate?
The shorter the loan term, the less rate affects your total payment because you will amortize the principal balance much more quickly.
For example, every 0.25% on a $500,000 loan on a 10-year term means an extra ~$62 per month in your payment if you keep it for the full 10 years. This is even less if you pay the loan off early. For many, this extra ~$62 per month is inconsequential.
Choosing the better overall program at a slightly higher monthly rate can often be a smarter long-term financial decision than taking a lower rate with prepayment penalties and less support.
Servicing and structure
A lender’s structure and servicing can save you valuable time and reduce stress. How you are serviced, how unexpected needs are handled, and ease of contact are important factors to consider. Knowing your lender is ready to help with any issues that arise is very valuable.
Consider:
- Does the lender charge for additional equipment needed to bank with them or allow remote deposits?
- Does the lender charge for or limit deposits or items?
- What additional services will you get or be charged for if you need them?
Merchant services
Merchant services allow you to accept credit card payments from your patients. Being equipped to accept credit cards often comes with fees that often aren’t transparent.
Some lenders draw customers in with low interest rates on loans but require the use of their high-fee merchant services. This could negate the benefits of the low rate.
Future support
When you buy, open or improve your practice, look ahead to the future. Your lender should be able to support you with any possible future needs.
Consider:
- Does the lender have a real estate program to help you purchase your practice building?
- What are the lender’s loan-to-value (LTV) guidelines?
- Does the lender offer construction or expansion loans?
- Can the lender fund equipment purchases if needed?
