Medical Loans & Patient Financing

    Doctor handing medical loan financing agreement to patientHealth is priceless and illness can be very expensive. For a significant number of Americans, the cost of a medical emergency can put family finances in intensive care even after the body has recovered.

    Medical loans can be a way to make these situations manageable.

    This is especially true for anyone without health insurance. Joint replacement surgery costs $16,500 to $33,000. Cataract surgery runs $2,300 to $3,000. Gastric bypass weight loss surgery costs $2,000 to $24,000. Even routine diagnostic medical procedures, such as a colonoscopy, can average $1,000 to $3,000.

    Even if you have insurance, you might have to deal with a large deductible and be responsible for the amount the insurance doesn’t cover.

    This is a big deal for those who don’t have a well-stocked emergency fund, and a significant number of us haven’t. A 2018 financial security index survey by Bankrate revealed only 39% of respondents said they could cover a $1,000 setback using their savings. Obviously, $1,000 is a drop in the bucket of what serious medical expenses can run.

    So, it can pay to learn about medical debt like medical loans, bad credit medical financing and other medical bill options.

    Where to Find Medical Loans

    There are a number of medical financing options. Personal medical loans are available online and from local lending institutions. Also called signature loans, unsecured loans allow you to borrow money without putting up collateral. The interest rates are usually fixed, with a payoff period of two to three years or longer.

    Longer payoff periods mean lower monthly notes, but you’ll pay more in interest over the life of the loan. Pros: Lower fees, better rates, fast approval decisions and fixed monthly payments simplify budgeting. Cons: Since it’s a loan, you’re adding interest to the medical cost, and if your credit isn’t good, you may not qualify or you won’t get a good rate.

    Sofi and LightStream are among the top online medical lenders. Both offer loans up to $100,000, low starting rates for borrowers who qualify and repayment terms of two to seven years.

    It helps to have strong credit: Sofi, with interest rates ranging from 5.99%-16.99%, has a minimum credit score of 680, and LightStream is 660. Neither has late fees. Sofi has a minimum annual income requirement of $45,000 (though its borrowers’ average income is more than twice that). LightStream (rates 3.99%-16.99%) has no minimum requirement. The time to funding for both platforms is typically seven days.

    For borrowers with poor credit, Avant is a better option. Avant offers loans to anyone with a minimum score of 580. Rates are roughly double those offered by Sofi and LightStream, and there is a 4.75% administrative fee and fees for late or unsuccessful payments.

    Peer-to-peer loans generally range from $1,000 to $40,000 and must be paid off in one to five years, depending on the loan agreement. LendingClub is one popular peer-to-peer lender with rates ranging from 6.95%-35.89%.

    If you have a 401(k) retirement savings account with your employer, you might be able to borrow money from the account. Since you are borrowing from yourself, no credit check is required. The drawback is that you don’t rest on the money taken out of your retirement account. You can take up to five years to pay back the loan unless you quit working there, in which case you must pay the loan back within 60 days, or you’ll be penalized for an early withdrawal, if you are not retirement age.

    Factors to Consider for Medical Loans

    Just because you can get someone to lend you the money doesn’t make it a good loan for you. Don’t let the pressure you feel from the medical expenses lead you to make a rash decision. Here are some questions to consider so you can compare what’s out there.

    • What is the loan’s annual percentage rate (APR)? This represents the actual annual cost of borrowing, including fees and interest. The rates vary greatly based on your credit score. Obviously, the higher the score, the better.
    • Are the rates fixed or variable? Fixed rates mean the cost of interest and payments remain the same, which provides peace of mind. Variable rates can rise or fall based on the market.
    • What’s the origination fee? Lenders often charge a one-time fee to cover the cost of processing the loan.
    • What’s the loan term? In other words, how long will you be paying. A longer term means lower monthly payments, but you will pay more total interest before it’s all over. You should aim for something that fits your budget but allows you to pay it off as quickly as you can.
    • Finally, how quickly can you get the money? If time is of the essence, you may want a lender with a quick application to funding process.

    Should You Use a Medical Credit Card?

    Another option is a medical credit card, which offers a 0% APR for six to 24 months. Many medical providers offer these cards. The biggest advantage is the interest-free credit. However, if you don’t pay it off in the required time, the balance will be hit with high interest rates. In some cases, you’ll pay interest on the original loan amount, not just the balance due. CareCredit is a specialty credit card that offers these features.

    Some credit card companies offer 0% cards for an introductory period that can serve the same purpose. You’ll need good-to-very-good credit to qualify, and if you’re getting such a card to pay off health care debts, it’s wise to use it only for that purpose. If you don’t, it will be harder to maintain accurate records for tax purposes.

    Bad Credit Medical Loans

    Medical emergencies do not respect credit scores, but large health care bills are a double whammy for those whose finances and credit are poor. Ignoring the bill until collection agencies get involved doesn’t solve the problem. Medical debt collection just delays and makes it bigger, worsening your credit and possibly subjecting you to wage garnishment.

    There are loans for those with bad credit, which can be used to pay off medical debt. It should come as no surprise that the interest rates are higher if your credit score is low, because the lender is taking a greater risk. Credit unions and local banks may be willing to work with those with lower scores. Shop around and compare rates. Personal loans in the LendingTree network range from $1,000 to $35,000, and rates from 6% to 36% APR. Those with credit scores under 620 can expect significantly higher rates.

    There are ways to improve your credit score if your situation is not an emergency. Start paying your bills on time, particularly credit cards. Pay down your credit card balances. Don’t apply for new credit. This can have a significant effect in as little as three to six months.

    However, if the situation can’t wait for that, be prepared to show a bank or credit loan officer that you are creditworthy. It helps if you can show you’ve lived in the same place and worked the same job for several years, which indicates stability. Bring tax returns from at least the past two years, details of your job history, a list of assets and where you stand on paying them off.

    Medical Loan Alternatives

    Before seeking treatment, talk to multiple providers to see if you can get a lower price for the treatment. If you can’t pay your medical bill, speak to your medical provider and try to negotiate the bill down based on your financial need, and ask for a payment plan. You’ll need to agree to make regular payments, and as long as you do so, the collection agencies won’t get involved. That way, your credit doesn’t get hurt. Also, check the bill for errors.

    Options for those who have equity in their home is a home equity line of credit (HELOC) or a home equity loan (second mortgage). These are secured loans, with your home serving as collateral, which means better interest rates and tax deductibility. Normally, you can borrow up to 80% of your home’s appraised value. The down side? If you don’t pay off your loan, you may lose your home.

    We live in a time of medical breakthroughs. There also are a lot of ways to pay for its cost, if you know where to look.

    Max Fay

    Max Fay is an entrepreneurial Millennial whose thoughtful writing shows he has a keen eye on both. Max has a genetic predisposition to being tight with his money and free with financial advice. At 25, he not only knows what an “emergency fund” is, he already has one. He wrote high school and college sports for every major newspaper in Florida while working his way through Florida State University. That experience was motivation to find another way to succeed financially and he has at Debt.org. Max can be reached at mfay@debt.org.

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