Most people, even those with pretty good healthcare coverage, dread the unexpected medical emergency. Not only because of the threat to one’s health they represent, but because most insurance policies have a laundry list of things they won’t cover. And for those things they do cover, the deductible can be significant. As a result, it’s all too easy to wind up owing the doctor or hospital, or both, a lot of money. And not everyone has thousands of dollars in cash on hand to pay such unexpected bills. As a result, they may consider a medical loan to cover the costs. But are medical loans really a good idea? That’s what we’re here to explore.
What is a Medical Loan?
A medical loan is actually a personal loan that is used to pay down medical debt. This type of loan is typically unsecured, which means the lending institution can’t repossess your car or boat or whatever you might have had to put up as collateral. Personal loans usually come with fixed repayment terms consisting of monthly payments spread out over 1 – 3 years. Sometimes more, depending on the size of the loan. This is advantageous because you know exactly how much you’ll owe each month and can budget for it.
If this type of loan has a downside it’s that, because they’re unsecured, lenders tend to charge higher interest rates to protect themselves in case of default. That means that if your credit history is less than ideal you’re likely looking at interest rates north of 20%. On the other hand, if you have excellent credit and you’re willing to agree to automatic payments, you’ll likely be able to snag a very reasonable interest rate.
Where Can You Get a Personal Loan?
There are actually quite a few lenders who offer personal loans. However, not all are entirely reputable and some won’t offer reduced rates even to those with good credit. So you’ll need to shop around. For personal medical loans, we’d suggest you go with an established lender with a solid reputation for reliability and fairness like Western Shamrock. They’ll also allow you to save time and aggravation by getting the process started online.
Pros and Cons of Medical Loans
As is the case with most things, there are pros and cons to using a personal loan to pay medical bills. Let’s take a close look at what they are:
Medical Loan Pros
- It’s often faster than a traditional bank loan – Once approved some lenders will provide the funds in just a few business days. This can be crucial if you are in a tight financial spot.
- Fixed payments – There is no mystery involved. You know exactly how much you’ll need to pay every month. This makes budgeting a much simpler, more accurate process.
- You won’t have to max out your credit cards – Did you know credit rating agencies will penalize you for carrying large balances on your credit cards? It’s true, they often will. Taking out a personal loan to pay medical bills can avert that situation.
- You may save money – If you have good credit you may actually save money by paying down your medical bills using a personal loan. That’s because interest rates on personal loans can be in the mid-single digits for those with outstanding credit.
Medical Loan Cons
- Potentially high-interest rates – If your credit history is less than squeaky clean, you can be pretty sure you’re going to pay a high-interest rate on a personal loan.
- It’s another monthly bill – While the medical loan will allow you to pay off the doctor, you’re still going to have a new monthly bill to pay each month.
What are the Alternatives?
Frankly, the alternatives to securing a medical loan are not great. But we’ll take a look at them anyway. These are the most popular options:
- Seek financial assistance – Most hospitals offer various forms of financial assistance to patients that qualify. Typically such programs consider your income, assets (if any), liabilities (if any) as well as the nature of the medical care you want help with. That is, was it absolutely necessary? If it wasn’t they may be less willing to help.
- Ask for discounted care – In this case, it’s not the quality of the care that is discounted, but the cost. Not every hospital will offer discounts, but some do. Especially for uninsured patients or those whose insurance won’t cover the procedure they need. If you’re uninsured and you need a certain procedure, there is a decent chance you may qualify for a discount.
- Negotiate – Once the bill comes in, if you feel it is prohibitively large and you’re going to have a difficult time paying it, try negotiating with the hospital. Sometimes you’ll encounter a stone wall. But sometimes they’ll be willing to talk and may even accommodate you if your argument is reasonable.
- Pay with your credit card – This is the option a lot of people choose either because they aren’t aware of the above alternatives or they’ve been turned down. But even if your credit is less than perfect, a medical loan may be a better way to go than maxing out your credit card. You may wind up saving money on interest and you’ll keep some space on your credit card in case another, non-medical emergency should arise.
- Use a 0% APR credit card – If you can get a 0% APR credit card it may well be the best way to go. This type of card typically offers zero-interest payments for 18-20 months. So every penny you pay each month will go toward the paying down principle. There are a few catches here though. First off, not everyone will qualify for a 0% card. Second, you’ll need to be disciplined and not use it for anything else. And finally, if you don’t pay the balance off within the interest-free period, interest rates kick in. And they can be substantial.
As you can see, there are a number of alternatives to medical loans available. However, most require you to be in a dire financial position to take advantage of them and none are guaranteed. The best alternative would likely be paying with the 0% APR credit card. But only those with spotless credit are likely to qualify for one of those. If that’s you, then great!
The Bottom Line on Medical Loans
If you find yourself saddled with an unexpected medical bill and you don’t have the cash necessary to handle it, you’ll need to explore options. Which ones will be available to you will largely depend on your financial situation. You may find you qualify for a discount or financial assistance. Or it may become obvious that a medical loan is your best choice to retire the debt. The most important thing is to take your time and consider all your options thoroughly before you just whip out your credit card at the payment counter. You may be able to save money, time and hassle with a personal medical loan.