For American consumers, medical expenses are no small thing. On average, consumers owe nearly $600 in past due medical bills and 20 percent of credit reports include at least one medical collection according to the Consumer Finance Protection Bureau. According to some sources, the Affordable Care Act made it worse for many consumers, raising deductibles and co-pays to the point where their health insurance doesn’t cover a significant portion of their medical bills.
In many cases, it could be one large and unexpected medical bill that puts people in the hole. For many consumers who may be struggling temporarily with medical expenses, a medical loan may be their best option to prevent further deterioration of their finances. It can be done, but whether taking out a personal loan for a medical expense is the right choice depends heavily on each consumer’s situation.
How Does a Personal Loan Work?
A personal loan is an unsecured loan issued by a lending institution without the need for collateral. Loan amounts typically range from as low as $1,000 to as high as $100,000 with loan terms from one to seven years. While interest rates are higher than what you would find with mortgages or equity lines of credit, they can be much lower than credit cards which is often the source of default for medical bill financing. Depending on your creditworthiness, personal loan interest rates can range from as low as 5 percent to as high as 20 percent.
Because the loan is unsecured, lenders rely heavily on your credit score and history during the underwriting process. They will also take into account such factors as your employment history (the steadier the better), your income, your debt-to-income ratio as well as your financial behavior. Only the most creditworthy borrowers will be able to obtain rates below 10 percent.
One advantage of personal loans for medical expenses is they can be obtained quickly. With many of the top online lenders, you can apply for a loan in 10 minutes, have an answer within 15 minutes, and get the funds within a few days. With traditional lenders such as a large bank, the process could take a little longer and it might require an in-branch visit.
Steps to Take Before Applying for a Personal Loan
Taking on debt to fix a financial problem can be a risky strategy, so it requires a good deal of planning and thought before enacting. With medical bills, there are sometimes several avenues you can try first. Before applying for a medical loan, you should take the following steps:
- Verify the accuracy of the medical bill: Incredibly, a considerable portion of medical bills are inaccurate, often including duplicate charges or charges for services that weren’t performed. Be sure to review each charge with the medical provider.
- Request financial assistance: Private medical providers are not obligated to provide financial assistance; however, some may be willing to set up an installment plan. If you are offered that as an option, review the terms carefully. If the interest rate is too high or the installment period is too short, you might do better with a medical loan. Nonprofit providers do have an obligation to work with you if you have a financial hardship. In some cases, you could obtain a 0 percent interest installment plan.
- Negotiate a lower bill: It doesn’t hurt to try and negotiate your bill. Done in good faith, some providers might be willing to accept 60 percent of something rather than nothing. They might be more willing to negotiate after spending some time trying to collect from you.
- Review your insurance coverage: Insurance companies are certainly not infallible and their billing is sometimes off. In some cases, they may not have fully credited you with the proper amount of coverage.
If after taking these steps, you still have a debt you can’t cover or can’t afford the payments, you may want to consider a medical loan.
First, check to see if you might qualify for a credit card with a zero interest promotional period. If you think you can repay the bill before the promotional period expires, typically between 12 and 18 months, it would be your best option in terms of total costs, of which there would be none except a small balance transfer fee.
Outside of that, a medical loan is likely to have a lower interest rate than a credit card and have more flexible repayment terms. Keep in mind that there is no guarantee for a personal loan to have a lower rate than a credit card.
The advantage of personal loans for medical expenses is that the rate is usually fixed, as are the payments and the term. You can set up a term length that fits the payment to your budget. If you are able to secure a personal loan with no prepayment penalties, it is always a good idea to pay it off earlier than your term, if possible. This will help you save on interest.
Author: Jeff Gitlen
Personal Loans Information
Personal Loan Reviews