Medical bills often arrive when you least expect them. Even with insurance, the out-of-pocket costs for surgery or dental treatment might seem overwhelming.
Medical loans help many people pay for healthcare costs. A medical loan is a personal loan you choose to use for medical or dental expenses. You borrow a set amount from a bank, credit union or online lender and repay the balance over a specified period of time with interest, the cost of borrowing money.
Taking out a loan could help you cover critical care, but it’s important to weigh the pros and cons of financing your health expenses. Understanding all the implications can help you decide if a medical loan is right for you.
Pros of financing medical procedures
Financing medical procedures could offer several advantages, from making treatment more accessible to easing the burden of paying large bills all at once.
Quick access to funds
A sudden need for surgery, physical therapy or dental care often means you won’t have time to save money. But delaying treatment for months might allow a condition to worsen. If you need to move fast, a personal loan could give you access to funds in one to two business days. Fast funding may help you schedule surgery sooner, begin your rehabilitation without delay or purchase medication before your symptoms worsen.
Quick funding could also ease the emotional strain of an emergency. Instead of juggling phone calls with billing departments, you could focus on your recovery.
Predictable repayment
Medical bills often arrive piecemeal over time — from the hospital, a lab and a doctor’s office — making budgeting difficult. A loan often has a fixed repayment schedule, which means you’ll likely know exactly how much you owe each month and for how long. Predictable payments could make it easier to build a budget because you can avoid surprises and plan for the months ahead.
For example, instead of wondering how to pay your emergency room bill one month and the cost of your follow-up with a specialist the next, you can spread the expense evenly across the loan term.
Flexibility
Medical loans may be used for a wider range of services than insurance payments. Whether you’re covering emergency surgery, long-overdue dental care or the fertility treatments you’ve waited for so long, you have more choices about how the funds can best support your care. Flexibility could give you the freedom to address more than one expense at once, like paying for a procedure or the costs of traveling to a specialist in another city.
Cons of financing medical procedures
Financing medical procedures might also come with drawbacks, such as added costs from interest and the pressure of long-term debt.
May not cover everything
On the flip side, a medical loan might not always cover the full cost of a procedure. Lenders often set borrowing limits based on your credit profile and income, which means the amount you qualify for could be less than your total medical bill. You may still need to rely on other payment methods like insurance, savings or a hospital payment plan.
Impact on your credit score
Unpaid medical debt may affect your credit score, depending on how much you owe, which scoring model is used and where you live.1 Here’s what you need to know:
- The major credit reporting agencies (Experian, TransUnion and Equifax) typically include medical debt over $500 on a credit report.
- Credit scoring agencies treat medical debt differently. While VantageScore no longer considers medical debt in its scoring, FICO still does—though newer models give it less weight than other types of debt.
- Some states have laws that prohibit altogether the reporting of medical debt or the use of medical debt in lending decisions, but most don’t.
Keep in mind that rules and laws about medical debt can change, so it’s a good idea to make sure you can stay on top of your payments — just in case.
Increases debt
Taking on a medical loan also means adding to your debt-to-income ratio (DTI). Your DTI shows how much of your monthly earnings go toward paying off debt. DTI is one of many factors lenders consider to determine your eligibility for a loan or a credit card.2 Taking out a personal loan could make it harder to get more credit in the future.
It’s also important to think about how comfortable you feel adding another payment to your plate. If you already have a mortgage, car payment or credit card debt, the loan payment could strain your budget further.
Think carefully before applying
Financing medical procedures with a loan can give you access to timely care, predictable apayments and flexibility. At the same time, you may face borrowing limits, credit score considerations and added debt. While a medical loan may not eliminate every challenge, it can offer borrowers who are prepared to take on the payments the peace of mind and predictability they need to focus on their care.
Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of thedigitalmatters.com or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.
Sources
1. https://www.experian.com/blogs/ask-experian/medical-debt-and-your-credit-score/
2. https://www.experian.com/blogs/ask-experian/credit-education/debt-to-income-ratio/
