Medical Loans: What You Should Know Before Borrowing

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

Medical Loans: Quick Take

Medical loans function like personal loans, but they’re used specifically to cover healthcare costs. Here’s a rundown of their main features:

• Typical loan amounts: Several hundred dollars to $100,000 or more

• Annual percentage rate (APR) range: 6% to 36%

• Repayment terms: 1 to 7 years

• Funding speed: As soon as one day after loan finalization

• Credit impact: With new accounts, increased credit utilization can reduce credit score, on-time payments can help score

What Is a Medical Loan and How Does It Work?

A medical loan is usually a type of personal loan you take out specifically to pay for medical expenses. Like with other loans, you receive the funds in a lump sum and repay the money with interest in equal installments over a term that might last anywhere from one to seven years.

• You can apply for a medical loan from a bank, credit union or other lender.

• Once your application has been approved and you accept the loan, the lender deposits the funds into your bank account, usually within one to seven days.

• You can withdraw the funds immediately to pay your medical bills.

• Your first payment is usually due within 30 days.

Pros and Cons of Medical Loans

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

Pros

• Your payments are predictable every month.

• You have a lower APR than with credit cards.

• Funding is fast for urgent procedures.

• You can consolidate multiple medical bills into a single payment.

Cons

• Approval of your medical loans depends on your credit score.

• Interest will add to your cost of care.

• Missed payments can hurt your credit.

• Some lenders charge origination fees.

Who Should Consider a Medical Loan?

Medical loans aren’t right for everyone. They may make sense for the following:

• 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

How 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

Applying for a medical loan is similar to applying for a traditional personal loan. Here are the steps you can follow:

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.

Documents You’ll Need

• Photo ID

• Proof of income

• Bank account

What Happens If You Don’t Pay Medical Bills?

If a bill is unpaid, the medical practice will take action to get its money. When this doesn’t work, it 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.

Financial Assistance and Billing Options

Many hospitals and other healthcare providers offer billing options and financial assistance that can help you pay your medical bills without taking out a loan.

Billing Options

Rather than pay the full cost all at once, you might be able to break it into payments.

• Payment plans are usually interest-free when administered by the healthcare provider rather than a third party, such as a medical credit card company.

• Hospital payment plans allow up to two years to repay, on average.

• Most plans are available to all patients, but if you have insurance, you’ll likely need to pay any co-pay or other cost-sharing you’re responsible for upfront.

• If possible, contact your healthcare provider’s billing office in advance of your appointment to discuss billing options.

Financial Assistance

Financial assistance, or “charity care,” is also widely available and can reduce or eliminate your out-of-pocket costs if you lack insurance or are underinsured.

• Assistance is usually need-based, so you might have to meet income requirements to qualify.

• Have proof of income, such as tax returns or pay stubs, and statements showing mandatory expenses such as rent/mortgage, insurance, utilities and debt payments, when you apply.

• Hospitals are required to provide you with a copy of their financial assistance policy, with instructions for applying. Ask for it if you don’t receive it.

• It’s best to contact the provider’s billing office to apply for financial assistance before you receive care, if possible. You have 120 days from your billing date for a hospital stay — 240 days if the hospital is non-profit — before the bill goes to collections.

Alternatives to Medical Loans

One of the following alternatives might be a better fit for some people.

Short-Term Cash Options

Some cash advance 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 high.

Payday loans are a last-resort option. However, costs can be exorbitant — $10 to $30 per $100 borrowed.

Risks of Medical Loans

A medical loan can help you get the care you need. Just be aware of the risks.

• Unlike most healthcare providers’ payment plans, which are interest-free, medical loan interest rates can be quite high.

• Consumer laws and credit bureau policies limit the impact of medical debt on your credit. Medical loans don’t qualify for those protections.

• You could pay much more than you need to if you take out the loan without first applying for financial assistance.

Key Takeaways

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

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

• The terms can range from one to seven years, and the interest rates vary from 6% to 36%.

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

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

FAQs

Here’s some more information to help you decide if a medical loan is the right choice for you.

Are medical loans secured or unsecured?

Medical loans are usually unsecured — you don’t need collateral to get one.

Can you get one with bad credit?

Possibly, yes. But you’ll likely pay a very high interest rate.

Do they affect credit?

Yes, but whether the overall effect is negative or positive depends on your credit history.

• Negative impact: New credit inquiry, reduced average account age and higher overall debt balance

• Positive impact: Improved credit mix and stronger payment history with on-time payments

Are they tax-deductible?

The loans themselves are not tax-deductible. But the medical expenses you pay with the loan are deductible if they exceed 7.5% of your adjusted gross income.

How fast is funding?

Some lenders fund medical loans the same day if you finalize the loan early enough in the day. More typically, funding takes one to seven days.

Sources

• SoFi. 2024. "Impact of Personal Loan Term Length on Loan Repayment."

• National Library of Medicine. 2024. "Financial assistance and payment plans for underinsured patients shopping for “shoppable” hospital services."

Rudri Patel contributed to the reporting for this article.