What you need to know about medical loans

Even if you have health insurance in the U.S., you can end up with thousands of dollars in medical bills that you can’t pay back. One in four Americans have trouble paying their medical bills, and half of the country has delayed or declined medical treatment due to finances.

However, both preventive care and emergency treatment are crucial. If you can’t cover those expenses upfront, medical loans may help. An advantage of this financing option is that you can receive funds fast — sometimes as soon as the next business day. But before you take one out, it’s a good idea to be aware of some potential downsides, like limited funding.

What a medical loan is

A medical loan is a personal loan that is taken out for the specific purpose of financing medical treatment. Medical loans can pay for a variety of medical costs, like elective surgeries, IVF treatments and emergency procedures.

Many medical loans are unsecured, meaning you won’t have to risk your home (or anything else) in the name of your health. However, unsecured personal loans for medical bills are typically best suited for those with good credit scores who can get a good interest rate.

If your credit score isn’t great – especially if you’ve struggled to pay medical bills in the past – you can also apply for a secured medical loan. The trade-off is that you’ll need to offer some form of collateral, which you’ll lose if you find yourself unable to pay the loan. But you’ll get a much lower interest rate and will have less to pay off in the future.

How do they work?

You can get a medical loan by applying online or at a brick-and-mortar financial institution. Many lenders will let you get prequalified, a process that gives you your available rates and terms based on your basic financial information. In order to officially apply for the loan, a credit check, salary verification and other information will be required.

The timeline for receiving the funds after approval will vary from lender to lender but can take as long as a week in some instances. Once you receive funds, you’ll make fixed monthly payments until the loan is paid back in full, with interest added to each payment.

How are they different from personal loans?

A medical loan is a type of personal loan, the proceeds from which can be used to pay for medical expenses. In fact, many lenders may not even distinguish the loan as a medical loan, but instead will state in their loan terms or literature that medical costs are an acceptable use for the loan proceeds.

Who offers medical loans?

Loans to cover medical expenses are available from online lenders, banks and some credit unions. Health care providers may also offer medical loans.

Advantages of medical loans

Medical loans can be a good alternative to depleting emergency savings or racking up credit card debt. Here are some of the main benefits of a medical loan:

• Variety of loan terms: Most personal loans offer repayment term options ranging from 36 to 60 months, allowing you to select a length that best suits your needs. And since interest rates are fixed, you’ll have the exact same payment each month.
• Fast funding. “It’s quite common for patients to be denied services unless they come up with payment. A medical loan may be the only way to obtain critical medical care or cosmetic care for that matter,” says Michael Sullivan of Take Charge America. Many personal loans can be disbursed in a matter of days, getting you the money you need without delay.
• Less expensive than credit cards. Using a credit card to cover the cost of medical treatment can be expensive, with interest rates averaging around 20 percent. If you have good credit, it’s common to find personal loans with interest rates around 11 percent or lower.
• Flexible use. The proceeds from personal loans can be used for almost anything you’d like.

Disadvantages of medical loans

Medical loans are not the right choice for everyone. Here are some of the biggest considerations:

• High interest rates for bad-credit borrowers. While personal loans generally have lower interest rates than credit cards, keep in mind that having bad credit could make your medical loan more expensive. Bad-credit borrowers will often see interest rates cap at 36 percent on personal loans.
• Limited funding. It’s no secret that medical treatment can be extremely expensive, and in some cases, medical loans may not be sufficient. Your loan amount largely depends on your financial profile, but many lenders have caps of around $40,000.

Who medical loans are best for

Medical loans may be a good idea for those who have a solid credit history and can qualify for the most favorable interest rates and terms. A loan may also be a good option for someone who wants to use the funds for a variety of expenses, including travel or other costs incurred in association with treatment and recovery.

In addition, those who need treatment immediately and do not have adequate insurance or enough cash to pay for the medical expenses themselves may want to consider a loan. “When facing a possible life-threatening condition, certainly it is better to take out the loan rather than to make another appointment for some other time,” says Sullivan.

How to apply for a medical loan

If you’ve determined that a medical loan is right for your situation, take these steps:

1. Decide how much you want to borrow. The first step in any loan application process is figuring out how much money you need and can reasonably afford to borrow and pay back. Crunch the numbers and identify a loan amount that is most manageable for your monthly household budget.
2. Check your credit. Because loan terms and interest rates have a great deal to do with your credit history and score, it’s a good idea to review your credit profile and correct any mistakes you find. This information will help you understand which types of lenders to look for — some lenders specialize in loans for people with poor credit, for instance.
3. Research multiple lenders and loan options. Get quotes from a few lenders and identify the most competitive rates and favorable loan terms and conditions. Some lenders offer online pre-qualification tools that let you gauge your approval odds and view loan estimates without impacting your credit score.
4. Select a lender and complete the application as required. In addition to your personal information, most lenders will need proof of income and employment. Once you’ve completed the application process in full, you may be able to receive funds in as little as one business day.

Alternatives to medical loans

For some, medical loans aren’t the right choice, either because of time constraints or credit requirements. Fortunately, there are alternatives.

Credit cards

Credit cards are a viable option for financing less-expensive procedures, especially if you’re taking advantage of an introductory zero-interest offer. Several lenders even offer medical credit cards, which are an immediate solution to paying for medical costs.

However, interest rates on medical credit cards can be higher than those of other credit cards; some lenders even take advantage of unwary patients by advertising heavily in doctors’ offices and not being upfront about the terms. For example, medical credit cards with an introductory 0 percent APR offer for the first year might charge interest retroactively if the full balance isn’t paid off before the 12 months are up. If you’re considering a medical credit card as an alternative medical loan, review the terms and conditions carefully first.

Payment plans

Many medical offices offer payment plans for their services, some even without interest. Before filling out any applications for a loan or credit card, talk to your doctor about your concerns regarding paying for the procedure. You might be surprised to find out that working out a payment plan directly with your provider might be the most affordable medical loan financing option.

Crowdfunding

Consider using a crowdfunding platform to solicit donations from others for your medical bills. Some options include CoFund Health, GoFund Me and Plumfund. Most sites charge a small processing fee, and you can choose to stop accepting donations at any time.

Hospital provided financial assistance

Depending on your financial situation, some hospitals may offer you financial assistance in the form of discounted or free service. Ask your provider if a financial assistance program is available.

Bottom line

Medical bills are among the highest expenses Americans will pay in their lives. While the cost of elective and preventive procedures might seem prohibitive, remember that taking good care of your health now can help prevent a serious illness later that results in tens or hundreds of thousands of dollars in medical bills.

Although many Americans decide to put off medical treatment due to cost, medical loans exist for a reason — they can help you afford the care you need. But keep in mind that getting a personal loan isn’t the right move for everyone. Consider the pros and cons outlined before taking one out. If you decide that a medical loan is a good fit for you, compare rates, terms and fees from multiple places to get the best deal.