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Medical Loans: Options to Finance Your Health Care Expenses

July 25, 2018
Loans, Personal Loans
Medical Loans: Options to Finance Your Health Care Expenses-story
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Medical loans — which are personal loans applied toward medical expenses — can be used to consolidate existing medical debt, cover emergency or planned medical procedures like root canals or plastic surgery, or pay for high deductibles and out-of-network charges.

Medical loans are likely the most expensive way to cover your medical costs, and you must have excellent credit to qualify for the lowest rates offered by lenders. For this reason, medical loans should be considered only after you’ve exhausted other options, including payment plans and medical credit cards.

Here’s what to know about medical loans:

Medical loan options

Online lenders offer personal loans that can be used for nearly any purpose, including financing medical procedures or consolidating existing medical debt. The loans are unsecured, and rates are generally based on creditworthiness.

LenderAPR
(origination fee)
Loan amount
Avant
4 stars out of 5
9.95% - 35.99%
(4.75%)
$2,000 - $35,000
LendingClub
4.5 stars out of 5
6.16% - 35.89%
(1% - 6%)
$1,000 - $40,000
LightStream
4 stars out of 5
5.49% - 14.24% with autopay
(0%)
$5,000 - $100,000
SoFi
5 stars out of 5
6% - 15%
(0%)
$5,000 - $100,000
Upstart
4 stars out of 5
7.73% - 29.99%
(0% - 8%)
$1,000 - $50,000
Click to compare estimated rates on NerdWallet.

SoFi and LightStream work best for financing costly medical procedures or consolidating medical debts, since the lenders provide high borrowing amounts, low starting rates for those who qualify and longer repayment terms.

Avant is an option for borrowers with bad credit; the lender requires a minimum credit score of 580 to qualify. Upstart may be a good fit for borrowers who are new to credit, since the lender considers other factors, including education and employment, in the application process.

As with any loan, calculate estimated monthly payments to see if they fit in your budget. For example, a borrower with excellent credit who takes a three-year, $10,000 loan will pay an estimated annual percentage rate of 13.9% and monthly payments of $341, according to NerdWallet’s personal loan calculator.

Compare medical loans

Here are some key factors to consider when shopping for medical loans.

Annual percentage rate. A loan’s APR represents the true annual cost of borrowing, including interest and fees, helping you make an apples-to-apples cost comparison between loans. APRs on personal loans range from 6% to 36%. You’ll need strong credit to get the lowest rates.

Fixed or variable rates. The loan’s rate can either be fixed (interest costs and payments stay the same), or variable (interest costs and payments can rise or fall, depending on market rates). A fixed-rate loan comes with peace of mind that your payments won’t rise over the loan term.

Origination fee. Some lenders charge one-time origination fees to cover the cost of processing the loan. The fee typically ranges from 1% to 6% and is included in the APR calculation.

Most lenders subtract the origination fee from the loan proceeds; a $10,000 loan with a 3% origination fee would cost $300, leaving you with $9,700.

Loan term. The repayment period length affects your monthly payments. A longer repayment term results in lower monthly payments, but higher total interest paid over the life of the loan. Aim for a loan term with payments that fit within your budget.

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Speed. If you need fast funding to cover medical expenses, consider a lender with a quick application to funding process. Some online lenders can provide funding within a day or two, while others can provide funding within a week.

Alternatives to medical loans

There may be better ways to finance a medical procedure or pay medical debt than through a personal loan.

Payment plans. Your best option may be to establish a payment plan with the medical provider and avoid paying interest on the debt if it’s repaid within the term, says Kari Jean Glosser, a financial advisor and partner at Abacus Wealth Partners in Santa Monica, California.

Some health care providers require a deposit followed by monthly payments; others may accept just monthly payments until the debt is repaid in full, says Glosser, who used a payment plan for her own dental surgery.

Ask your medical provider about any fees or charges associated with the payment plan, so you know the full cost of this option.

Medical credit cards. These are specialty credit cards available through many medical providers.

CareCredit is a specialty credit card that offers a short-term financing option at 0% interest if paid in full by the end of the term (6, 12, 18 or 24 months). For longer terms, the APR depends on the purchase amount and term length.

The card, issued through Synchrony bank, is accepted at over 200,000 health care providers. CareCredit’s approval and terms are based on your credit, and not all medical providers offer promotional financing options.

» MORE:  3 medical debt mistakes to avoid

0% credit card. A 0% interest credit card is another option that can include a sign-up bonus and rewards. You’ll need strong credit to qualify, and you must pay off the debt in full before the promotional period expires or you’ll pay high interest charges.

It’s best to dedicate a regular credit card for medical expenses only. Mixing medical debt with other purchases makes it harder to keep records for tax deductions or a health savings account, Glosser says.

Other options. If you’re facing hospital bills, a medical bill advocate can help spot potential errors and negotiate on your behalf to have your total bill reduced. Some medical providers may also offer hardship plans for low-income borrowers.

» MORE: Ways to pay medical debt

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