August 23, 2018
By Mary Beth Eastman

Pros and Cons to Taking Out Loans To Pay Medical Costs

Simple. Thrifty. Living.

Rising medical costs in the United States are certainly putting a large dent in many people’s wallets. Even if you are fortunate enough to have decent medical insurance, you might still have a large deductible or find yourself responsible for out-of-pocket expenses that weren’t covered by the insurance company.

A large medical bill can become a large financial burden for many, but one option that people use to handle their medical expenses is to take out a personal loan. There are pros and cons to doing this, and all options and factors should be considered before choosing a personal loan as a solution.

Before taking out a personal loan, see if you can set up a payment plan with the hospital or medical facility. Some hospitals and clinics will even offer financial aid. Some companies issue credit cards specifically for paying off medical expenses. These medical credit cards usually offer a period of time in which no interest is charged, but be warned—after the no-interest period is over, if there is still a remaining balance, some cards will then charge interest on the initial amount, rather than just the balance. This can leave you with a very large debt still to pay off.

Some of the best online loan providers with the lowest available rates include SoFi, LightStream, Prosper, and Lending Tree. Credit unions usually also offer personal loans at lower rates than banks. Be sure to research the terms of each lender before making a final decision.

Pro: A personal loan can allow you pay off a large medical expense with ease. You pay monthly fixed payments at a rate that might be more favorable than a credit card or the hospital’s payment plan.

Cons: Nearly all personal loans offer a fixed rate throughout the full course of the loan. That means you don’t save any money by paying the loan off early. Also, if your interest rate isn’t low, you’ll pay a lot in interest. Plus, you could wind up paying more in late fees and penalties if you make late payments. That risks damaging your credit.

Watch out for fees

Many lenders also charge an origination fee, usually a percentage of the loan size. That means you could end up paying hundreds more right from the start. If you have a low-interest credit card, it might be the better option. There will be no origination fee, and as you pay the balance down, you will save on interest over time.

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