Before shopping for medical loans, it’s a good idea to check your credit report first.
It’s not unusual to get an unexpected medical expense that you can’t afford. Before the pandemic, over a third of people in the United States owed medical bills. More than half of those who struggled with medical debt had defaulted.
Public health issues have already left many individuals financially fragile, and medical costs continue to rise. Unanticipated medical expenditures might be financially deadly for a lot of families. Two-thirds of Americans who file for bankruptcy do so due to medical debt.
If you find yourself with overwhelming medical debt, it’s critical to address the problem before submitting your bill to collections, which can harm your credit. A medical loan may be a solution. Before you borrow, though, consider the benefits and drawbacks of doing so and look into any alternatives you might have.
What is a medical loan?
A medical loan is a personal loan obtained by a lender for the express purpose of covering medical debt or paying an established medical bill. These are often unsecured personal loans.
However, getting a secured loan is possible. A secured loan means you’ll have something to put down as collateral, and the lender won’t check your credit history since it’s backed by an asset instead of cash, resulting in a lower APR.
Before shopping for medical loans, it’s a good idea to check your credit report first. Your score will indicate which loans you may qualify for. If your credit is excellent, you may be eligible for a low-interest unsecured personal loan. Unsecured personal loans with an elevated APR are also available to fair credit borrowers.
Medical loans: pros and cons
Medial Loan Pros
Quick cash:
Some lenders may provide you with the cash you require within a few days or hours of your approval.
Higher loan amounts:
Higher loan amounts are available, which might help pay off large debts.
APRs are lower:
On average, personal loan APRs are lower than credit card APRs. Longer terms exist, and you can usually take longer.
Medial Loan Cons
Burdensome for poor credit borrowers:
If you’re offered a high APR and have to pick an extended repayment time, a medical loan may be pretty expensive. It won’t lower what you owe in terms of interest or fees. Taking out a loan will increase the amount you owe interest and costs. Repayment is difficult without additional income.
Comparing medical loans
If you’ve decided that a medical loan is right for you, it’s time to look around and compare rates and terms from several lenders. The majority of lenders offer a pre-qualification method through which you may check your APR without harming your credit. You can also compare interest rates at numerous lenders simultaneously using a loan comparison site. Consider the following:
Principal
The amount a lender agrees to lend you is the loan principle. You should seek out a lender that can provide you with enough cash to cover both your emergency medical expenses and medical debts, as well as any applicable origination fee. Borrowing more than you require is not advised.
Origination fee
If you have excellent credit, you might be able to locate fee-free personal loan providers that don’t charge anything upfront. Otherwise, you may be charged an origination fee, which is used to cover the lender’s investment in issuing the loan. These charges can range from 1% to 10% of the overall amount and are deducted from the
Interest rate
The interest rate shows how much more money you’ll owe each period as a proportion of the original sum. The lower your interest rate, the less you’ll pay over time.
APR
APR is even more important than the interest rate in comparing loan alternatives because it reflects the total cost of borrowing, including origination fees and other expenses, as a percentage of the principal.
Term
Longer payment terms will result in lower monthly payments, but the more significant interest paid. You should choose a period that allows you to pay your debt without stress, yet borrowing money for longer than five years is rarely advised.
Penalties
APR does not include fees such as prepayment penalties and late payment costs, which are charged separately. You should be aware of these penalties before signing the loan agreement if at all possible. Avoid finance companies that charge a prepayment penalty if you can.
Alternatives to personal loans for medical expenses
Contact the provider.
If you receive a medical bill that you can’t afford, your health care provider may be able to assist you in one or more ways. Many hospitals have financial assistance programs that might be accessible to you based on your income and the necessity of your treatment. Even if you don’t qualify, being uninsured might allow you to get a discount on your invoice.
Consult your insurance company.
Take the time to double-check that your bill charges are correct. There are many errors throughout the claims procedure, so if an item of expenditure wasn’t covered, you should contact your insurance provider to find out why. If you discover any mistakes, dispute them with your insurance carrier.
Pay with a credit card.
If you can get a 0% introductory APR credit card and believe you’ll be able to pay off the debt in 12 to 18 months, applying for a credit card rather than taking out a personal loan is probably a better financial decision. You will avoid any interest and origination fees this way.
Keep in mind that if you put your bill on a credit card, you may miss out on government aid. Check into financial assistance alternatives before placing your bill on a credit card.
Ask for assistance
You could borrow money from a friend or family member or look into local nonprofit organizations that might assist with medical expenses if you can’t borrow from friends and relatives. Using crowdfunding for essential medical care has worked for some patients.
What can I do to avoid medical debt?
Keep health insurance
Maintaining excellent health insurance is the best approach to prevent exorbitant expenses. While plans with a low deductible are more expensive, they will save you money in the long run by preventing you from incurring charges that exceed your budget later on. Consider establishing a Health Savings Account (HSA).
Keep a fund for emergencies.
Start building your emergency fund with $2,500 as the goal. This amount is enough to reduce the risk of financial hardship for many low-income families and maybe a good starting point if you’re just getting started on creating one.
Is it a good idea to take out a personal loan for medical expenses?
The path to financial freedom starts with solid credit. If you find yourself in need of money and have exhausted all other options, taking out an unsecured personal loan can help protect your good name while giving access to capital when it matters most.
It’s essential to research the available loan options before signing any agreements. When applying for personal loans, you want to make sure your monthly payment will fit into a budget, as defaulting on your loan could lead to even more financial hardship.