A helping hand for your health: medical loans for major medical expenses

The cost of health care shouldn't be a barrier to you getting the medical care and attention you need. Whether you’ve had a health event or you’re exploring your options for a procedure that’s considered elective, medical bills are no joke. 

A medical loan might make it easier to pay for major health care expenses. Let’s explore what medical loans are and when they can benefit you.

What are medical loans?

A medical loan is a loan you take out to pay for health care expenses. What you use a medical loan for is up to you. 

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

• Your spouse needs emergency surgery after an accident and your health insurance won't pay all of the costs. 

• You're diagnosed with a serious illness that's going to require months of intensive treatment. 

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

• You want to have lasik surgery and your insurance won't pay for it. 

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

Because medical loans are flexible, you can use them to cover emergencies, ongoing treatments, elective procedures—whatever you need to manage your family's health. 

Anyone can apply for a medical loan, whether you have insurance or you don't. 

Approval for medical loans can really hinge on what financing option you're pursuing. But generally, your ability to get a medical loan will depend on things like your credit score and income. 

How do medical loans work?

Medical loans work a lot like any other kind of loan. You borrow money to pay for health care expenses, then pay it back to the lender. 

The lender can set the repayment schedule. And they can also decide what to charge you in interest and fees. 

Unsecured medical loans

Most medical loans are unsecured, which means you don't need to pledge an asset that you own as a guarantee that you’ll repay the loan. Approval is based on your creditworthiness. 

Unsecured medical loans can come in a few different forms: 

• Personal loans. An unsecured personal loan allows you to borrow money for virtually any expense. Medical and dental care are two of the top reasons people get personal loans.

• In-house financing. Your health care provider or health care facility might offer financing directly.

• Personal line of credit. A personal line of credit works kind of like a credit card, in that you can borrow against it as needed. You'd then pay back what you borrowed, plus interest. 

Secured medical loans

It’s possible to get a secured medical loan, or a loan where you’re borrowing against a valuable asset. The best example of a secured medical loan is a home equity loan or home equity line of credit (HELOC). Both let you borrow against your equity, which is the difference between what you owe on your home and what it's worth. You pledge your home as a guarantee that you’ll repay the loan. Because pledging your home lowers the risk for the lender, this type of loan can cost less than unsecured loans. 

With a home equity loan, you get a lump sum that you can use to pay for medical expenses or anything else. You'll pay back the home equity loan just like you would repay any other loan.

HELOCs work like a line of credit or a credit card. So, instead of getting the entire loan in one lump sum, you can borrow against your credit line as needed. You’ll only pay interest on the amount you borrow.  

Medical loan pros: when it might make sense to borrow for health care expenses

Getting a medical loan can help you cover your full cost of care. It helps to ask a few questions to decide if a medical loan is the right financing option. For example:

• Do you have any savings you could draw on to pay for health care? 

• What kind of interest rates or loan terms could you qualify for?

• Does your doctor offer interest-free financing or payment plans?

• Could you get any of your medical debt forgiven?

• Can your budget handle monthly payments for a medical loan?

If you’re in a situation where you’re facing large, unexpected medical bills, a medical loan could help you spread the payments out over time.

Should you get a 401(k) loan to cover medical expenses?

If you have retirement savings, you might be tempted to dip into it to pay for medical care. But that could short-circuit your financial goals for the long-term. 

Hold on, if I get a 401(k) loan, I'm just paying it back to myself. So what's wrong with that? 

Well, for one thing, you could end up with a big tax bill if you leave your job before the loan is repaid. If you don’t pay off your loan within five years or you change jobs before you repay the loan, you’ll probably be hit with a bill for income taxes and an early withdrawal penalty. 

More importantly, any money you take out of your 401(k) or IRA to pay for health care stops growing. That could mean less money to retire on later. Taking out a medical loan leaves your retirement savings intact. 

Medical loan cons: drawbacks to consider

A medical loan may not always be the best solution when you need money for health care. 

Debt can be problematic if your budget simply can't handle another payment. Also, if you don't have excellent credit, you could get stuck with a higher interest rate. The higher your rate, the more you'll pay to borrow. Lastly, borrowing against anything of value puts that thing at risk. So it’s a good idea to think twice about borrowing against your home, and make sure you only do so for health care that's a necessity or a high priority for you.  

Tips for choosing the best medical loan

If you've weighed the pros and cons and think a medical loan is a good fit, it's time to find the right loan option. 

Personal loans for medical expenses might be a good option if you don’t own a home or you'd rather not borrow against it. Personal loans are very quick and usually fund within a few days. Some people get their funds the day after they apply.

As you're comparing loans, pay attention to the following:

• Interest rates

• Minimum and maximum loan amounts

• Loan repayment terms

• Loan fees

• Minimum credit score and income requirements

• Special features or benefits, like rate discounts

Pay close attention to the information you’re given. Sometimes good offers have strings attached. For example, in-house financing (such as from your health care provider), often comes with deferred interest. This means you get a low promotional rate‌, but if you don’t pay off the loan before the end of the promotional period, you’ll pay interest on the entire loan from day one, including the part you’ve already paid off. That’s a common pitfall and can make in-house financing much more expensive than a personal loan or even a credit card. 

If you're leaning toward a home equity loan or HELOC, you'll also need to think about how much equity you have and how much you'll be able to borrow. 

Researching loan options might be time-consuming but can be well worth your time. The best medical loan for you is one that allows you to borrow the amount you need at terms that work for your budget. 

Consider talking to a professional debt advisor about strategies for covering your medical expenses. It’s free and confidential.