Medical loans can be a dangerous way to pay for healthcare. Make sure you have all the facts before you sign.
Healthcare costs are out of control! Healthcare costs have jumped at an annual pace of 4.6% since 1983, almost twice the rate of inflation in other consumer goods. That means paying for healthcare now is almost five-times as expensive as it was just 30 years ago.
Special savings accounts like the HSA can help to lower the burden of insurance premiums and expenses but the fact is that it’s never been more expensive to pay for healthcare.
To pay for medical expenses, Americans are now turning to medical loans and several companies are advertising low rates and special payment programs. Even doctors are getting in on the trend with special in-clinic financing.
But what is a medical loan and should you pay for healthcare with a loan?
What is a Medical Loan?
Medical loans are nothing more than an unsecured personal loan you use to pay for a medical procedure. A lot of websites like to claim to be exclusively for medical loans or to claim lower rates for the specific purpose but these are all the same type of installment loan.
Because of the high cost for some medical procedures, many doctor’s offices are now offering medical loans and other credit programs. Do not take these without shopping around!
Doctors are in the business of medicine, not in the loan business. That means they’re just partnering with a personal loan company to offer services to their patients. The problem here is that since patients typically accept these loans without looking at the terms, the loan companies charge rates well above what you’d pay anywhere else.
The doctor gets a commission on every loan they sell and the loan company gets to take advantage of your trust in the doctor.
Instead of accepting a medical loan sold through your doctor, make sure you check online to shop your loan around. Since personal loan sites do a soft-pull of your credit, you won’t hurt your credit score and can get rate quotes from several lenders before choosing the lowest one.
Let’s look at the different medical procedures you can pay for with a medical loan, then I’ll highlight some of the personal loan sites that specialize in medical expenses and low-rate loans.
What Types of Medical Expenses Can You Pay with a Loan?
Since it’s a personal loan, you can pay for any medical procedure after being approved. There are no restrictions on using the money and you can even use it for something else if you end up not going through with the procedure.
That said, there are some medical expenses that are more commonly paid for with a medical loan.
The most common medical procedures paid for with medical loans tend to be elective procedures like weight loss and cosmetic surgery. These might not be covered by insurance or there might be more out-of-pocket expense even if insurance will pick up the bill.
Generally patients can get some part of weight loss surgery paid by insurance if a doctor says it’s necessary but few insurance plans will cover other cosmetic procedures like breast augmentation or a facelift, both surgeries that cost well into the thousands of dollars.
Higher medical costs on all procedures means a lot of people are turning to medical loans to pay the deductible and out-of-pocket costs for traditional surgeries as well. The cost of a colectomy can exceed $24,000 with out-of-pocket to the patient totaling $5,000 or more on a high deductible insurance plan.
The medical loan segment of the market is only going to get bigger. Research reported by The New York Times shows that rising deductibles and other costs could force many of the 250 million Americans with health insurance to use loans to pay for healthcare. That’s on top of the 47 million without health insurance.
Can You Get a Medical Loan with Bad Credit?
The bigger tragedy in all this is that often the most in need of help to pay for medical expenses are the ones least able to pay for it. Studies have proven a direct link between poverty and higher medical expenses.
“The U.S. Department of Health & Human Services reports that families with income between 20% to 30% of the poverty threshold spend an average of $6,000 a year on medical costs, twice as much as those living between 40% to 50% of the poverty threshold.
The problem here is that many of these people that would need a medical loan have bad credit.
There are websites though that can help with medical loans on bad credit. Interest rates are typically higher, ranging from 12% to as high as 36% for borrowers with a credit score of 580 FICO or lower.
You can’t always hold off on medical loans but if you can work on improving your credit score for three months, you can usually boost your score enough to get a better rate on any type of loan.
If no payment plan is available until you can get a loan for medical expenses or if you can’t wait for the procedure, check the websites below for immediate loans.
Best Websites for a Medical Loan
Getting a medical loan at the best possible rate means shopping your loan around to different websites. As mentioned, since these personal loan websites do a soft-pull on your credit report to pre-approve and offer a rate, it will not count against your FICO as an inquiry.
This means even if you aren’t sure you qualify for a medical loan based on your credit score, you should check several sites to make sure you’re getting the best interest rate possible.
The table below shows personal loan and peer-to-peer loan websites I’ve used or reviewed. Each offers medical loans as an option with differing credit score and income requirements.
|Peer to Peer Lending Site||Loan Fees||Credit Score Needed||Loan Rates||Notes|
|5%||580||9.95% to 36.0%||Best p2p loan site for bad credit borrowers. Lower credit score and three options including peer loans, bank loans and personal loans.|
|No Fee||Not available but higher than most, around 680 FICO||5.95% to 14.2%||Special discounts for variable rate loans. Offering $100 cash back on peer loans.|
|1% to 6%||620||6.25% to 30.0%||Best peer loans for graduates and no credit history.|
|No Fees||520||Vary by State||No fees and lowest credit requirements for lenders|
|1% to 6%||640||6.95% to 35.89%||Low rates on p2p loans for good credit borrowers.|
While you’ll want to apply on at least three loan sites to make sure you’re getting the best rate available, different credit score borrowers will want to focus on different sites.
What’s the Interest Rate on Medical Loans?
Medical loans are generally available for between $1,000 and $40,000 depending on the website. Interest rates range from 6% to 36% depending on your credit score and other factors on your credit report.
Most personal loans for medical expenses require the borrower to be 18 years or older and a U.S. resident. You will typically need at least a part-time job with a monthly income of $2,000 or more.
Interest rates on medical loans for borrowers with good credit will usually be between 7% to 12% on a loan of up to $15,000 and three years. That would mean a monthly payment around $480 for three years.
That point about loan amount and other terms is important to getting a lower rate. Lower loan amounts and shorter-term loans will be offered lower rates on most sites. Paying the loan off in a shorter amount of time will mean higher monthly payments but also savings on interest. I’ve tried to stay away from the judgement of whether medical loans are a good thing or not.
These are extremely personal decisions and that’s not my call. If you are considering a medical loan to pay for surgery, make sure you know the facts and shop your loan around to get the best rate. If you can, spend a few months improving your credit score to get a lower rate.