Pros and Cons to Taking Out Loans To Pay Medical Costs

Written By Mary Beth Eastman
Last updated February 20, 2019

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August 23, 2018

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.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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