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Rangely Garcia / Money

Even if you have health insurance, there might be time when you need some extra help paying for a medical procedure or treatment. If you’re considering elective medical care or facing large expenses, a medical loan might make it easier for you to pay down those costs.

Learn about how and why medical loans can be a useful tool — as well as when you might be better off seeking another form of financing.

What is a medical loan?

A medical loan is essentially just an unsecured loan you can take out in order to pay for health care expenses. “The term is kind of used more for marketing than anything else,” says Lauren Anastasio, a certified financial planner at SoFi, a San Francisco-based lender. There are numerous providers that offer medical loans, some of which are divisions of larger banks or lenders.

Health insurance often doesn’t cover optional procedures like fertility treatments, laser vision correction, plastic surgery and cosmetic dentistry — some of which can have price tags that run well into five figures.

And even with health insurance, costs can still be high. For example, if you need to visit a doctor who is out of your plan's network, your insurance might cover only a portion of the treatment, or, depending on the plan, sometimes nothing at all. Your loan amount will reflect your particular needs.

How do you apply for a loan to pay uncovered health care costs?

“Medical debt is unsecured debt, so it’s very similar to a personal loan,” Anastasio says. As such, the application process is like what you would experience if you were to take out a personal loan for an unspecified purpose. You can finance medical costs through a bank, credit union or non-bank lender.

“The process is fairly quick,” Anastasio says. “Because it is unsecured debt, the decision is made solely based on the quality or creditworthiness of the applicant,” which includes your credit score as well as your ability to repay (as evidenced by your debt-to-income ratio). “You can be approved and have funds within 24 hours,” she says.

Can you use a medical loan for cosmetic surgery?

Cosmetic surgery and dentistry are two big reasons you might take out a medical loan, says Todd Nelson, spokesman for LightStream, the unsecured-loans division of Truist, the bank created by the merger of SunTrust and BB&T. “People often finance things like cosmetic procedures, gastric bypass, dental procedures,” he says.

What are medical loan interest and terms?

Because many types of institutions offer such financing, loan terms differ, so it’s a good idea to shop around. You need to consider the interest rate you’ll pay and the length of the repayment period, as well as any fees the lender might roll into your loan.

Interest rates vary widely. Generally, you can expect to see interest rates as low as about 6% for the most creditworthy applicants all the way up to about 30% (and occasionally higher) for the riskiest borrowers.

“Most commonly, people opt for a fixed rate,” Anastasio says. Variable interest rates can start lower, she says, but the trade-off is that you get less stability and no guarantee that rates won’t rise. “Variable rates make payments less predictable and can increase the cost over time,” she says.

Variable rates can adjust up or down, but in today's low-interest-rate environment they’re only likely to go up from here. On the plus side, that’s not likely to happen for a while: The Federal Reserve says it plans to continue accommodative monetary policy through the end of 2023.

In general, unsecured debt is more expensive than secured debt. A contract like a mortgage or a car loan is backed with collateral the lender can seize if you don’t pay the loan back. Lenders have fewer options to get their money back if you default on unsecured debt like a medical loan, and that elevated risk means you pay more for the financing.

Will you be charged fees on a medical loan?

On top of the interest you’ll pay, some lenders charge fees for medical loans. “It’s not universal to all lenders — it’s absolutely something people could shop around for,” Anastasio says.

Lenders might charge an origination, processing or underwriting fee, which essentially are different terms for the same fee, Anastasio says. Some lenders might even charge an application fee — meaning that you will have to pay them even if you don’t get approved for the loan.

“There are unfortunately scenarios where there’s an upfront application fee and upfront financing charges, as well,” Anastasio says. “You do want to be aware of those in order to understand the full cost of borrowing.” Another fee to watch out for is an early prepayment fee: It’s not a good idea to sign up with a lender that will penalize you if you take the initiative to pay off your debt early. It's generally best if you're allowed to repay your loan amount on an accelerated schedule if your circumstances warrant it.

Fees are all the more reason to shop around, especially if you have good or excellent credit. “The stronger someone is from a borrowing standpoint, the higher their credit and ability to pay, the less likely they’ll need to go with a lender who does charge those types of fees,” she says.

How long do you have to pay off a medical loan?

Loan terms vary, including the repayment period. Nelson says LightStream’s medical loans have terms as long as seven years, but most have shorter timelines.

“Duration depends on the dollar amount,” says Anastasio. Higher loan amounts are generally correlated with longer terms. “It’s rare to find something that’s longer than four or five years, and two to three years is probably going to be the most common,” she says.

If you can’t pay back your medical loan, you could be hit with late fees and penalties, the same as if you fell behind on credit card payments. The lender could send the debt to collections, and your credit score will definitely take a hit.

Medical loans and your credit score

Your credit score matters when it comes to medical loans: How good it is will determine what kind of loan terms a lender will offer you.

A medical loan might hurt your credit score, but not necessarily. Taking on new debt can temporarily lower your score, but accruing more on-time payment activity can offset the hit.

Medical loans are installment loans, which is a different category of debt than revolving (i.e., credit card) debt. Installment loans are a lump sum that you pay back over time in fixed monthly payments. Having a mix of different credit types can actually improve your score, so everything else being equal, adding an installment loan is better for your credit score than piling more debt onto your revolving credit limit.

Some lenders structure medical loans for people with bad credit — or might even cater to that segment of the market — but your interest rate could balloon if your credit is poor.

Scores from around 670 to 739 are generally considered good, and people with good credit can expect medical loan APRs about on par with current credit card interest rates — think mid-teens — while borrowers with pristine credit should hold out for the low end of the medical loan APR range, which is around 6%.

You can get a medical loan with bad credit, but it might not be the best financial decision for you. If your credit is poor — think, anywhere in the 500s — and you’re looking at a 30% (or higher) APR, Anastasio says you should think twice about taking out the loan at all. “In those scenarios, I’d advise someone to negotiate with the [medical] provider… rather than opting to take out that unsecured loan upfront,” she says.

Alternatives to medical loans

There are some situations where a medical loan is probably not your best solution, experts say. Evaluate your options before applying for a medical loan, especially if your only choice is a lender that charges upfront fees.

Should you put health care expenses on a credit card?

Anytime you’re borrowing money, whether it’s for a medical procedure or another expense, an installment loan where you receive the funds up front and have a fixed repayment term is going to be a more attractive option than a credit card. “Installment debt is looked on far more favorably than revolving debt,” Anastacio says. This is especially the case if the loan amount is high, she notes.

Financial experts discourage people from paying medical bills with a credit card if they plan to revolve a balance. The high cost of many medical procedures makes it likely that you could come near or even hit your credit limit, which can erode your credit score. Nearly a third of your credit score is based on how much you owe — but this isn’t just a dollar amount: It’s how much you owe based on how much available credit you have, otherwise known as your credit utilization ratio. The more you owe as a percentage of your available credit, the more your credit score can take a hit.

In addition, medical loans and other installment loans are structured so that you can pay them off completely by the end of the term. Credit card minimum payments are lower — but they’re also not designed to eliminate your debt in a set time frame, which means you still could be paying for that laser vision correction procedure by the time you need reading glasses.

Will a hospital forgive your medical bills?

A medical provider or facility might not waive your bills outright, but you might have better luck negotiating with your medical provider than trying to get a low-APR medical loan, especially if you're considering going into debt to pay off a medical emergency or if you have a poor credit history. If you’re working directly with the hospital as opposed to a lender, you might be able to get lower or even no interest, especially if you only need a few months to pay off the debt.

“There are often in-office financing options available, if they find themselves having to finance a procedure,” Nelson says.

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