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Guide to Medical Loans

What Is a Medical Loan and How Does It Work?
Austin Kilham
Austin KilhamUpdated February 9, 2023
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Health care is expensive. Almost half of Americans report that it’s very or somewhat difficult for them to afford the cost of care, and 41% say they have medical or dental debt, according to a survey from KFF (the Kaiser Family Foundation). If you have medical bills, or you’re facing a medical procedure and you don’t have the cash on hand to pay for it, a medical loan is one option that may help. Read on to learn about medical loans and how they work.

What Is a Medical Loan?

A medical loan is a type of personal loan that’s used to cover medical expenses. They are available from online lenders, banks, and credit unions. Medical loans and personal loans are essentially one and the same. Personal loans can be used for virtually any purpose, and medical expenses are one example of what you can use personal loans for. Rather than taking out a specific medical loan, you can generally take out a personal loan to cover medical expenses. 

How Do Medical Loans Work?

With a medical loan or personal loan, you receive a lump sum from the lender. In return, you agree to make regular monthly payments over time with interest. The interest rate you receive is based largely on your credit score. If your credit score is high, you’re more likely to get a lower interest rate. If you have poor credit, a lender might see you as a riskier borrower, and your interest rate could be higher. Personal loans tend to have lower interest rates than credit cards.The amount you can borrow with a medical loan may range from small personal loans of several hundred dollars, to loans of $50,000 or more. In addition, personal loans typically offer fast funding. In some cases, you can get your money on the same day you’re approved for the loan. That could make a personal loan a good emergency loan for a sudden medical situation.

Is a Medical Loan Secured or Unsecured?

A loan for a medical procedure can be secured or unsecured. However, most personal loans are unsecured, which means they do not require you to put down collateral. Because of this, they may have higher interest rates than secured loans. Borrowers with good credit may find it easier than those with poor credit to qualify for an unsecured loan.Secured loans do require collateral. If you fail to repay the loan, the lender can take your collateral. This type of loan for medical bills has less risk for the lender, so it could be easier to qualify for a secured loan, especially if you have bad credit. 

What Can Medical Loans Be Used For?

A medical loan can be used to cover a variety of medical expenses, including copays or deductible payments. It can also help with the cost of using an out-of-network medical provider. Additionally, you can use a medical loan to pay for a number of procedures that may not be covered by your insurance, such as: 
  • Orthodontics
  • LASIK vision surgery
  • Fertility financing
  • Cosmetic surgery 
  • Weight-loss surgery or treatment
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Getting a Medical Loan

The first step in getting a medical loan is to figure out how much money you need to borrow. Next, check your credit report to ensure that the information in it is correct. If you find any errors, report them to the credit bureau so they can be fixed.Then, shop around with lenders and get prequalified for a loan if you can. This will allow you to see the terms and interest rates you’ll likely qualify for, and it may help you determine the best personal loan option for you. Recommended: The Average Cost of MRIs With and Without Insurance

Medical Loan Requirements

Once you choose a lender, you’ll need to formally apply for the loan by filling out an application and providing any necessary documentation. Your lender will do a hard credit inquiry to see your credit score and review your credit history. In addition, they will look at your income and employment. The lender may ask to see tax returns, pay stubs, or bank statements as proof of income. They will also consider your debt-to-income ratio (DTI), a comparison of your monthly debts to your gross monthly income. Ideally, lenders prefer a DTI below 36%. When you apply for a personal loan, you may have to pay an origination fee that covers the cost of processing the loan. This typically ranges from 1% to 5% of the amount borrowed. The origination fee may be rolled into your loan total, in which case you will pay interest on it. 

How Long Can You Get a Medical Loan For?

The term or length of a medical loan or personal loan is generally one to five years. Some loans have longer loan terms of seven years. Typically, the longer the loan term, the more interest you will pay overall. 

Pros and Cons of Medical Loans

There are advantages and disadvantages of medical loans that you should be aware of. When are personal loans bad? It depends on your personal and financial situation. Here, we’ve laid out the pros and cons. Weigh them carefully before signing on the dotted line. 
Offers a range of amounts you can borrow for a variety of medical procedures and expenses Interest rates may be higher for borrowers with poor credit. 
Unsecured medical loans don’t require collateral. Paying interest increases the cost of your medical expenses. 
Fast funding. You may be able to get the money on the same day you’re approved. Secured loans put your collateral at risk if you can’t repay the loan.

The Takeaway

Health care can be expensive, and medical debt can add up quickly. One way of covering these expenses is by taking out a medical loan. These personal loans can be used for a variety of medical procedures and costs. Medical loans typically have lower interest rates than some other financing options, such as credit cards. Just be sure you can comfortably afford the monthly payments.As you’re exploring personal loan options, Lantern can help simplify the process for you. By filling out one simple form, you’ll get offers from multiple lenders in our network. That way, you can compare different options all at once to find the best fit for your medical financing needs.

Frequently Asked Questions

What type of loan is a medical loan?
How long are medical loans?
What kind of credit score do you need for a medical loan?
Photo credit: iStock/Shutter2U

About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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