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Guide to Medical Loans: How They Work and Things to Be Aware of

According to the Affordable Health Insurance survey for 2022, nearly 56% of American adults turn to medical loans when it comes to covering the cost of treatment. And it’s not a surprise. The cost of medical treatment in the US is one of the highest in the world. Even fixing a broken leg can cost you up to $7,500. And unfortunately, nearly 57% of Americans don’t have enough savings to cover their $1,000 emergencies.

This way, medical loans can be a real lifesaver. They are a form of personal loan that is designed specifically for medical expenses. Medical loans can help you pay for treatments that are not covered by your insurance plan, for example, elective procedures, dental work, or plastic surgeries. As their popularity has grown significantly over the last years, more and more lenders have created various forms of medical financial assistance. Keep reading to find out what options are now available.

Medical Loan Statistics

Medical expenses can be a significant financial burden, especially for people who don’t have health insurance or have limited coverage. According to the 2022 Affordable Health Insurance survey, 23% of those who owe medical loans have more than $10,000 in debt. Additionally, nearly 46% of medical loan borrowers reported problems paying medical bills, with 14% going to declare bankruptcy.

According to a report by LendingTree, more and more personal loans are used for medical bills. On average, Americans with medical debt owe between $5,000 to $9,999. An interest rate typically ranges between 5.99% and 35.99%.

While medical loans can be a helpful resource for those in need of medical financing, it’s also a form of debt that holds Americans back from having kids and buying homes. Thus, you need to be cautious when choosing a medical loan. Luckily, there are multiple options to choose from, so it can be easier for you to find the one that fits your budget.

Types of Medical Loans

Although medical loans belong to the group of personal loans, they are not created equally. There are several types available, so you need to know how they differ in order to figure out which one to choose. Below are the most common options to consider.

Secured Loans

Secured loans are borrowing options that require collateral. Collateral is some of your valuable property that a lender can use to cover your loan payments if you default. Thus, the property you provide as a pledge is used as a repayment guarantee. A house and a car are the most popular types of pledge.

You can typically borrow a portion of your property’s cost or the equity you own (for example, if you’re going to take out a home equity loan but still pay the mortgage on your house). The percentage can vary from 50% to 80% of your collateral or equity cost.

A secured loan typically has lower interest rates than unsecured ones. Additionally, they have more relaxed credit score requirements due to the collateral provided. Secured loans also have flexible terms, with some options offering repayment periods of up to 30 years. At the same time, they come with the risk of losing the collateral if the loan is not repaid on schedule.

Unsecured Personal Loans

Unsecured personal loans are a type of financial assistance that is not secured by collateral. These loans can be used for a variety of purposes, including medical expenses. A personal loan typically has fixed interest rates and repayment terms ranging from 2 months to 5 years.

The amount you can get with an unsecured loan always depends on your income and the current debt you owe. Typically, borrowers are allowed to access up to $100,000, provided that their gross monthly income is high enough to cover monthly payments.

Credit Cards

Credit cards can be used to pay for medical expenses within your credit limit. Additionally, most credit cards allow you to withdraw money from them, so you can either charge the full amount in the form of a cash advance. But be careful. When you take out a cash advance, the interest accrues immediately and charges every. There’s no interest-free promotional period. More than that, a cash advance interest rate is usually higher compared to interest on regular purchases.

Another pitfall of credit cards is that they often have higher interest rates and fees than regular personal loans. The average credit card rate is about 22%. Thus, it’s important to pay off the balance as quickly as possible.

Medical Credit Cards

Medical credit cards are a type of credit line that is specifically designed for medical expenses. This means that you will get a credit limit that can be used to pay for services from partners and participating healthcare providers. The treatments and procedures that you can cover are typically extended. You can use a credit card to pay for fitness, dermatology, cosmetics, SPA, and much more.

Medical credit cards typically offer grace periods and other promotional options. One of the most popular and well-known options is Care Credit. But keep in mind that medical credit cards can come with high interest rates and fees if the balance is not paid off in full before the promotional period ends. Also, the minimum payment is typically required.

Home Equity Lines of Credit

Home equity lines of credit (HELOCs) are a combination of home equity loans and regular credit cards. You can get an amount based on the cost of equity in your home that you own. However, you don’t get the money on hand. Instead, you get a credit line that can be used as needed. You also pay interest only on the amount you actually use.

HELOCs can come with either fixed or variable rates. Variable rates are typically lower, but they can change over time because of economic conditions. Commonly, HELOCs cost less than personal loans or credit cards. Nevertheless, they come with the risk of losing the home in case of non-payment.

How Do Medical Loans Work?

Medical loans are not much different from other types of loans. Here’s a breakdown of how medical loans typically work.

Application Process

As medical loans are offered by both traditional and online lenders, you can apply either in a store or on a website. To fill out an application form for a medical loan, you’ll typically need to provide personal and financial information, such as your full name, valid address, employment status, income, credit score, and bank account details. Some lenders may also require information about the medical procedure or treatment you’re seeking.

Once you submit your application, the lender will review your information and determine whether you’re approved for a loan. The notification can be by phone or via email. If approved, you need to sign a loan agreement. This can be made digitally or in a lender’s store.

The funds are usually transferred to your valid bank account, but some lenders may give you a check. If you apply for a credit card, you’ll get an issued plastic that is linked to your credit account.

Interest Rates and Fees

Like other loans, medical loans come with interest rates and fees that you have to repay in addition to your initial loan amount. Rates and fees can vary depending on the lender, loan type, and creditworthiness.

Interest rates for medical loans can range from around 5.99% to 35.99%. The higher your credit score, the better interest rate you can get. Fees are usually charged additionally. Most fees come in the form of a percentage of your loan amount and are deducted from it. Thus, you’ll get the sum minus fees.

Additionally, there are prepayment penalties and late fees that you need to pay additionally if the reason for charging takes place. Thus, you may be asked to pay fees if you decide to repay your loan early or when you pay late.

Repayment Terms

Medical loans typically have an installment structure, meaning that you should repay them in equal monthly payments within the loan lifetime. This way, your loan amount plus total interest cost will be divided by the number of months of your loan term. But when it comes to credit cards or HELOCs, other repayment forms are applied.

Credit cards and HELOCs are revolving credit. This means that they only charge interest on the amount that you’re actually using. These borrowing options typically allow you to choose how and when to repay the money you borrow. The credit line usually comes with only a minimum monthly payment of 5% of your outstanding balance. This payment is mandatory. You can carry an outstanding balance from month to month and repay it on your own schedule. But keep in mind that interest can add up quickly.


Medical loans are typically unsecured loans, so lenders make their decisions based on the borrower’s creditworthiness, income, and payment history. Having strong credit is essential if you want to get reasonable loan terms. Otherwise, you may consider a secured loan.

Additionally, borrowers usually need to be of legal age, have proof of citizenship, confirm their steady income, and provide a set of documents, such as ID, pay stubs, bank statements, and more.


Some loan options may require an additional guarantee. Thus, you may be asked to provide collateral to get the amount you need. Collateral can lower the interest rate and make it easier to qualify for a loan for people with bad credit. At the same time, secured loans carry the risk of losing the collateral if a borrower doesn’t repay the loan.

What Credit Score Should You Have to Get a Medical Loan?

In most cases, you need to have at least a 580 credit score to get approved. Lenders typically perform hard credit checks before they make a loan decision. This means that they request your credit and payment history from major credit bureaus and review your financial profile to estimate your creditworthiness. Therefore, getting a loan with a lower credit score can be challenging.

However, some lenders may have more lenient requirements. This way, you may be asked to provide collateral or bring a cosigner. Just shop around for a better offer or do your online research to find out what lenders work with bad credit borrowers in your area.

Pros and Cons of Medical Loans

Before you go into debt, you need to know that there are both pros and cons when it comes to taking out a medical loan. Let’s explore how you can benefit from this form of borrowing and what are its potential risks.


  • Medical loans offer a smart way to pay for necessary medical expenses that may not be covered by insurance;
  • You can access health care services quickly, without delaying treatment due to the lack of money at the moment;
  • Some medical loans offer flexible repayment options;
  • Competitive interest rates may be available for borrowers with good credit.


  • High interest rates and fees can be applied for some loan types;
  • Medical loans can impact your credit score if payments are not made on time;
  • Some medical loans may require collateral, which comes with the risk of losing assets in case of default.

Medical Loan Alternatives

Even if you don’t have enough savings to pay off your out-of-pocket medical expenses, there are several options to consider besides medical loans.

Ask Your Healthcare Provider about a Payment Plan

Some healthcare providers provide affordable payment plans with low interest rates. Such plans allow you to split your treatment cost into several parts and repay the money over some time. Research several options and contact a suitable healthcare provider to learn more about the terms offered. 

Consider 401(k) Loans

If you have a retirement savings account, consider borrowing money from it. This option allows you to borrow money from yourself in the future and pay it back with interest over a set period of time. This means that you can withdraw money from your retirement savings account and repay them with interest over time.

Some advantages of taking out a 401(k) loan are that the interest rate is typically lower compared to other types of loans. Additionally, the interest amount you pay goes back to your retirement savings account. 401(k) loans don’t require a credit check, so the application process is generally quick and easy.

But keep in mind that you’ll miss out on potential growth and compounding of your retirement savings. Additionally, you may be required to repay the entire amount immediately if you leave your job before paying back the loan. Otherwise, you’ll face penalties and taxes.

Borrow from Your Family or Friends

Sometimes it can be a bit awkward, but your loved ones can also help you overcome financial difficulties associated with unexpected medical bills. Ask your family members or friends to lend you the amount you need. Agree on the terms and conditions in advance and try to stick to them in order to avoid problems in the relationship in the future.

Things to Be Aware of When Taking Out Medical Loans

Here are a few things to consider before you go into medical debt.

Know Your Loan Terms

It’s essential to know what your loan cost consists of and how you should repay the money back. Different loan types may have different repayment schedules. Make sure there are no knowledge gaps when it comes to your loan agreement. Pay attention to interest rates, additional charges, monthly payment amounts, due dates, and other important features that can potentially affect your loan cost.

Ask about Who’ll Get the Money

While some lenders give you money on hand or deposit it in your bank account, others may transfer a loan amount directly to the healthcare provider. If it’s kind of a big deal for you, try to find it out before the loan process starts.

Make Sure Your Monthly Payment Amount Suits Your Budget

Take a look at your monthly income and make a simple calculation. Deduct all your regular expenses and other debt payments you make from it. Then, compare the remaining amount with the one that you need to pay on your medical loan. If it doesn’t seem like you will be left with nothing in the end, a medical loan can be a great solution for you. Otherwise, you can turn to alternative options or consider longer repayment terms.