Medical loans and loans for medical bills: What you need to know

Medical expenses can be a major source of stress. You or someone you love needs care, and you wonder how you're going to pay for it all. 

In that situation, medical loans may offer relief. You could get loans for medical bills to pay doctors, hospitals, or specialists, and turn your focus back to recovery. 

Let's look at when you might use a medical loan to pay for healthcare expenses, and how they work.

What are medical loans?

A medical loan is a loan you take out to pay for healthcare expenses. A loan for medical bills is typically a type of unsecured personal loan. Medical loans could help you fill the gap for costs insurance doesn't cover, pay for emergency care, or fund specialty treatments. 

Here are a few scenarios where a medical loan might come in handy: 

• Your spouse needs emergency surgery and you need to meet a large deductible before your insurance picks up the rest of the bill.

• You're diagnosed with a serious illness that requires an extended period of treatment.

• Your child needs braces, and you don’t have dental insurance. 

• You want LASIK surgery, and your insurance won't pay for it. 

• You're ready to start a family, and your doctor recommends in vitro fertilization (IVF), which comes with a high price tag. 

Flexibility is one of the most attractive features of medical loans. You could use them to cover what you need to take care of your family's health.

How do medical loans work?

Medical loans could allow you to borrow money for healthcare expenses and repay it over time, with interest. They have a set payment schedule, and your interest rate is typically fixed. Once approved, you can use the money to pay for any healthcare costs you need to cover.

Medical loans can be secured or unsecured:

• Secured loans require some kind of collateral, which is something of value you own that you use to back the loan. For example, you might use a bank account, a car, or your home to secure a medical loan. If you don't pay the loan, you forfeit your collateral.

• Unsecured loans don't have any collateral requirements.

You are getting a secured loan if you use a home equity loan or home equity line of credit (HELOC) that's secured by your house to pay medical bills. You could choose instead to use an unsecured personal loan or line of credit for medical costs, which wouldn't need collateral.

How can I get a loan for medical bills?

Getting a loan for medical bills isn't that different from getting any other type of loan. You'll need to choose a lender, complete the application, and submit to a credit check. If approved, the lender can deposit funds to your bank account, sometimes in as little as one to two business days. 

What type of medical loan is easiest to get? 

• Unsecured personal loans are generally easier to qualify for when you have good or excellent credit and a steady income. 

• You might be able to get a lower interest rate and longer repayment term with a home equity loan or HELOC.

Checking your credit reports and scores could give you an idea of what type of loans you're most likely to qualify for. If you know what type of medical loan you want to apply for, getting at least three rate quotes is a good way to gauge what the interest and monthly payments might be. 

If you have bad credit or thin credit, you might look for medical loans that accept co-signers. Applying with a co-signer could improve your approval odds if they have good credit. 

Pros and cons of using a personal loan for medical expenses

Using a loan for medical bills has advantages and disadvantages. Here's a quick look at how the pros and cons compare. 

Pros:

• You could cover the care you need without the added worry of wondering how to pay for it. 

• Medical loans may let you borrow smaller or larger amounts to meet different needs. 

• Many lenders allow you to choose your repayment terms, so you have a monthly payment that fits your budget. 

• A medical loan could be less costly than a credit card if you're able to lock in a low, fixed rate. 

• Funding may be fast, which is helpful in emergency care situations. 

Cons:

• Low rates aren't guaranteed, and your credit scores and type of loan could influence what you pay.

• Borrowing a larger amount could mean a higher monthly payment, which can stress your budget. 

• Secured medical loans put your collateral at risk if you can't keep up with the payments. 

• Applying for a new loan could knock a few points off your credit score.

• Some medical loan alternatives may be cheaper if you qualify for them. 

Costs of medical loans

If you think a loan for medical bills makes sense, add up the potential costs. Specifically, consider the interest rate and fees you'll pay. 

For example, let's say you want to get a $50,000 personal loan for medical bills. You qualify for an 18% interest rate, with a five-year repayment term. Here's what you'll pay:

• Monthly payment: $1,270

• Total interest: $26,180

This example assumes the lender doesn't charge an origination fee, which is a fee that covers loan underwriting and processing. Say the lender charges a 5% origination fee and deducts $2,500 from the loan payout. 

Your monthly payments wouldn't change, and neither would the interest paid. But the fee increases your total loan cost to $28,680. 

This is just an example, and your actual numbers will vary based on your credit scores, loan amount, loan term, rates, and fees. But it illustrates what a loan for medical bills might run you. 

How to qualify for a medical loan

Qualifying for a medical loan means meeting a lender's requirements, which can vary by loan type and amount. 

For example, qualification for a personal loan for medical bills is usually based on your credit scores and income. Home equity loans and HELOCs, on the other hand, consider those factors as well as how much debt you're carrying and the amount of equity you have in your home. Equity is the difference between what you owe on your home and what it's worth. 

Here are some helpful tips to qualify for a medical bill loan:

• Get prequalified.  Prequalifying means filling out an application that requires basic information, like your name, Social Security number, address, where you work, and how much you earn. The lender determines whether you're likely to qualify based on the information. If you prequalify, the lender tells you how much you're eligible to borrow, the interest rate, and the loan terms. 

• Decide how much you need to borrow. Lenders will want to know how much you want to borrow for a medical loan. Look over all the bills you need to pay now (or expect to have to pay coming up) and use that as a guideline. 

• Choose a lender. Choosing a lender to get a loan for medical bills means looking at how the terms and qualification requirements align with what you need. Reviewing all the loan details, from the rates to the terms to the fees, can help you decide which one to apply for.

• Apply. You'll need to tell the lender some details about yourself, including your name, address, phone number, email, date of birth, and Social Security number. You'll also need to share your income and employment history, and specifics about your home if you're applying for a home equity loan. 

Depending on your situation, your lender may request additional documents like bank statements or tax forms. The faster you get the documentation to the lender, the sooner the lender can process your application. 

Can you get a medical loan with poor credit?

Yes, some lenders offer medical loans to borrowers with poor credit, but they might cost more in interest and fees. Lenders use higher rates and fees to offset the added risk of lending to someone with a poor credit history. Again, this is where a co-signer could help. Their higher credit score could help to offset your lower one, so you can qualify for a medical loan. 

Alternatives to medical loans

Home equity loans and personal loans for medical bills can fit many situations, but not all. If you'd like to handle medical bills without debt, you may have other options. 

Ask your provider about a payment plan

Many health care providers offer payment plans to let you pay off your medical debt over time. They understand the burden that medical bills can present, and they work with patients to help them manage the cost of care. 

Payments are usually fixed, and the doctor may charge no interest or fees to enroll in the plan. Keep in mind that in-house payment plans are different from in-house loans or lines of credit. Doctor financing plans can charge interest and fees, so ask for a full explanation of what you're signing up for. 

A payment plan could keep your medical debt from going to collections and keep you on good terms with your doctors. Don't hesitate to call the billing department for the provider you owe money to, and ask whether a payment plan is an option for your situation. 

Apply for hospital assistance or Medicaid

Federal law requires most nonprofit hospitals to have a financial assistance program for low- and moderate-income patients. These programs can go by different names, but many hospitals refer to them as charity care. 

Charity care could pay some or all of your medical bills owed to the hospital. Eligibility is based on your income and ability to pay. Your hospital's billing department should be able to tell you the specifics of its assistance program, including who qualifies and what it pays. 

Medicaid is a federal health insurance program for low-income households. If approved, Medicaid can pay medical expenses for you, including certain eligible old bills that are still unpaid. Eligibility is based on family size, and income. Some states have asset limits for Medicaid. You can contact your local social services department to apply. 

Look into assistance for veterans, if applicable

If you're a veteran, you may qualify for financial hardship assistance to help with medical bills. For example, you might be eligible for:

• Repayment plans

• Copayment exemptions

• Debt relief

Check the VA's website on financial hardship to learn what's available in your situation. Or if you have an upcoming VA appointment, you might ask the office’s billing staff how to get help. 

Consider other charities and support organizations

If you've explored the options above and still need relief from medical bills, scout out charities and other aid organizations that might provide help. Some of the possibilities include:

• Healthwell Foundation

• PAN Foundation

• CancerCare

• Patient Advocate Foundation

Local churches and nonprofits are another option. There may be organizations in your community that are ready and waiting to deliver help with medical bills where it's needed most. You can also contact 211.org to learn about help for medical expenses.

What's next

• Add up your medical bills and estimated expenses that have yet to be billed to get an idea of what you'll need to borrow.

• Get rate quotes from three lenders to find out what you might pay for a personal loan or a home equity loan to pay medical debt. 

• Talk to a debt expert about how to manage medical bills and other debts like credit cards to keep your budget on solid ground.