What you need to know about medical loans

Preventive care and emergency treatment are vital for your health. If you can’t cover those expenses upfront, loans for medical procedures and related expenses 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 the potential drawbacks.

What is a medical loan?

A medical loan is a personal loan taken out to finance medical treatment. Medical loans can pay for a variety of medical costs, such as elective surgeries, IVF treatments and emergency procedures.

Most are unsecured loans, so you don’t have to put your home — or another asset — as collateral in the name of your health. However, to get the lowest rates, you’ll need good credit.

If your credit score needs work – 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 cannot pay the loan. But you’ll get a much lower interest rate and will have less to pay off in the future.

How do medical loans 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 for funding, a process that shows you realistic offers without hurting your credit. 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.

Where to get a medical loan

Medical loans are offered through banks, online lenders, some credit unions and health care providers. When comparing medical financing options, don’t just look at the APRs. Eligibility requirements, loan terms and fees will also impact on how much you’ll pay.

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

Pros and cons of medical loans

Medical loans can be a good alternative to depleting emergency savings or raising credit card debt. However, they aren’t the right choice for everyone.

Pros

• Predictable payments. Personal loans have fixed interest rates and repayment terms, so your bill won't fluctuate.
• Fast funding. Most personal loans are disbursed in a matter of days, getting you the money you need without delay.
• Less expensive than credit cards. Credit cards have an average interest rate of over 20%. Personal loans can offer interest rates under 10%.
• Flexible. The proceeds from personal loans can be used for any treatment or procedure.

Cons

• Interest. Some credit cards offer a 0% introductory period, but with a loan, you'll always pay interest.
• Costly for bad credit borrowers. If you have imperfect credit, you could end up with an APR as high as 36%, plus fees.
• Limited amounts. Personal loans typically range from $1,000 to $50,000. If your procedure falls above or under that threshold, you may need alternative funding.

Who medical loans are best for

Medical loans may be a good idea for those who have a solid credit score (700 and above) 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 Michael Sullivan, director of education at Take Charge America.

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 to see how much you’d need without cutting yourself short.
2. Check your credit. Because loan terms and interest rates have much to do with your credit history and score, reviewing your credit report and correcting any mistakes you find is a good idea. This information will help you narrow down your options as some lenders specialize in loans for people with poor credit, for instance.
3. Prequalify. Get quotes from multiple lenders and identify the most competitive rates and favorable loan terms and conditions.
4. Select a lender and complete the application as required. In addition to your personal information, most lenders will need documents to verify your employment and income information.

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 because of time constraints or credit requirements. Fortunately, there are alternatives, including:

• Payment plans. Many medical offices offer payment plans, some even without interest. So, talk to your doctor before resorting to other forms of credit, as a payment plan might be a more affordable option.
• Hospital provided financial assistance. Depending on your financial situation, some hospitals may offer you financial assistance through discounted or free service. Ask your provider if a financial assistance program is available.
• Crowdfunding. Some options to solicit donations include CoFund Health, GoFundMe and PlumFund. Most sites charge a small processing fee, and you can stop accepting donations anytime.
• Credit cards. Consider an introductory zero-interest offer if you’re financing an inexpensive procedure. You can also look into medical credit cards, but keep in mind that interest rates can be higher than those of other credit cards.

Bottom line

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 remember 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 a medical loan is a good fit, compare rates, terms and fees from a few lenders to get the best deal.