Medical Loans Explained: What To Know Before You Borrow

Medical loans allow you to borrow a lump sum to cover healthcare costs and procedures, which you repay in fixed monthly installments. Before deciding whether one is right for you, it’s important to understand how they work, what they cost and whether alternatives like personal loans or payment plans may be available.

What Is a Medical Loan and How Does It Work?

Medical loans function like personal loans, but they’re used specifically to cover healthcare costs. Here’s how the process typically works:

• Lump-sum payout: When a lender approves the medical loan, you receive a lump sum.

• Installment loan: Most medical loans are paid back monthly with a set payment.

• No collateral: A medical loan is unsecured, so collateral is not required.

• Loan amounts: You can get a medical loan up to $50,000.

• Annual percentage rate (APR) ranges: Rates typically range from 7% to 36%.

• Repayment term: Usually, the repayment term is from one to seven years.

Pros and Cons of Medical Loans

Like any financing option, medical loans come with benefits and tradeoffs. Consider the following:

Who Are Medical Loans Best For?

Medical loans aren’t right for everyone. They may make sense in these situations:

• Those facing a large medical debt

• Those without substantial savings in a health savings account (HSA) or emergency fund

• People consolidating multiple medical bills

• Borrowers with fair-to-good credit

• Those who prefer a single predictable payment

• Those declined for a hospital payment plan

5 Tips To Choose the Right Medical Loan

When comparing medical loans, focus on these key factors:

• Find out the APR: A lower APR means you’ll pay less interest over time.

• Determine the repayment term: Understand the repayment terms so you know exactly the total amount you’re going to pay.

• Be clear about the fees: Find out the origination fees, late fees and prepayment penalties.

• Choose realistic payment terms: Decide if the loan term length works for you.

• Review multiple lenders: Look at multiple lenders and determine if you can prequalify.

How To Apply for a Medical Loan: Step by Step

Applying for a medical loan is similar to applying for a personal loan. Here’s a step-by-step guide:

1. Determine your costs: Understand how much you need to pay to the provider and how much money you’ll need to cover procedures.

2. Check alternative methods first: Ask the hospital or provider whether you can establish an installment plan, look into HSAs or reach out to financial assistance programs.

3. Determine if you can prequalify: Shop around with different lenders to see if you can prequalify. Compare different APRs and payment terms.

4. Choose the best option: Consider what works best for your current situation.

5. Apply for the loan: Fill out the paperwork and submit.

6. Receive funding: Sign the agreement and receive funds.

What Happens If You Don’t Pay Your Medical Bills?

If a bill is unpaid, the medical practice will take action to get its money. When this doesn’t work, they may sell the unpaid medical bills to a collection agency.

Here are some more consequences to know:

• Collections: If the bill is unpaid, you may receive correspondence from a collection agency. The agency can forward this information to credit bureaus.

• 6-month grace period: Medical debt must be past due for six months before it appears on your credit report. This period gives you some time to resolve your debt.

• 7-year reporting timeline: Medical debt remains on your credit report for seven years.

6 Alternatives to Medical Loans

Medical loans aren’t the only way to finance healthcare expenses. Here are six other options to explore.

Hospital Payment Plans

Many medical practices and facilities offer payment options to their clients. A payment plan is the smartest way to repay your medical bills and avoid having to deal with collections. Here are a few points to keep in mind:

• Repayment terms can often be adjusted to fit your budget.

• Typically, you’ll repay the loan in equal monthly installments over a set term.

• Your minimum payment will depend on your loan balance and the terms set by the lender.

• Beware of extra costs that could be added to your loan total over time, like a high interest rate.

• If you come across additional billing fees that you don’t recognize, ask for clarification from your lender.

Financial Assistance or Forgiveness

In cases where your medical expenses have become impossible to pay, the debtor can apply for medical forgiveness. You will have to provide proof of your inability to pay before receiving the debt reduction or termination.

You can take these steps to set it up:

1. Before sending a letter requesting medical bill forgiveness, you should verify your debt.

2. Ask the medical facility if they are willing to work out a payment plan.

3. Write a compelling medical forgiveness letter that contains proof of your transactions to date.

4. If the medical practice agrees to the settlement that you propose, you will need to obtain a document proving their acceptance of your settlement offer.

0% APR Credit Cards

With an introductory 0% APR credit card, you can pay for your medical treatment while skipping hefty interest fees. Just know that credit cards impose a high interest rate if the amount is not paid in full by the due date or the end of the introductory period.

Short-Term Cash Advances

Some apps allow you to access a portion of your paycheck early without charging interest. However, if you need cash immediately, you might have to pay some fees.

For example, options like Instacash® from MoneyLion let you access up to $500 of your earned wages without a credit check.

Credit card cash advances are also available, but interest starts accruing the day of the withdrawal, and rates tend to be higher.

Personal Loans

With a personal loan, there’s flexibility to pay back the loan over time or all at once. These loans almost always have lower interest rates, especially compared to the interest rates of medical practices.

Personal loans can be either secured or unsecured.

• Secure loans: Require collateral, such as a vehicle or savings account, to back the loan.

• Unsecured loans: Don’t require collateral and are approved based on your credit history and overall credit profile.

If you’re exploring alternatives to traditional personal loans for medical expenses, you may also consider options like MoneyLion’s Credit Builder Plus membership which offer the ability to apply for a Credit Builder loan and use tools aimed at improving your credit with consistent, on-time payments.

Borrowing From Retirement Accounts

You may be able to borrow from your individual retirement account (IRA) to cover qualified expenses without paying the early withdrawal penalty, though you’ll still owe income tax on the amount withdrawn.

You can also borrow from your 401(k), which allows you to repay yourself with interest. As long as you follow the repayment terms, the loan is not treated as taxable income. However, if you miss payments, you can trigger penalties and taxes.

Key Takeaways

• You can pay for surgeries and procedures with medical loans.

• Medical loans are unsecured and are paid in a lump sum by the lender.

• The terms can range from one to seven years, and the interest rates vary from 7% to 36%.

• You can make a predictable monthly payment. If you miss a payment, it can go to collections.

• Delinquent medical debt can remain on your credit report for seven years.

Medical Loans: FAQs

Medical loans can be confusing. These FAQs break down what to expect before you apply.

Are medical loans secured or unsecured?

Most medical loans are unsecured.

Can you get a medical loan with bad credit?

You can get a medical loan with bad credit, but the loan will likely have a high APR, and the loan amount will be smaller.

Do medical loans affect your credit?

Medical loans do affect your credit. It’s considered a hard inquiry, and if you miss a payment, it decreases your credit score. It also increases your debt.

Is a medical loan better than using a credit card?

A medical loan is better than a credit card if the loan’s APR is lower than a credit card. It’s also better if the amount is a large payment. A credit card is better if you can get 0% and owe a small amount.