Medical Loans of June 2023

A medical loan is an unsecured personal loan that is used to cover health care bills. The borrower can use this funding to consolidate debt, pay for a medical procedure, or cover medical bills. This credit option is used for those medical expenses that are not covered by regular insurance. These include plastic surgery, fertility treatments, and orthodontics. Medical debt funds can also be used to pay for living expenses during recovery. Since this loan is unsecured, it does not require collateral.

How medical loans work?

Medical credit is issued by banks and online lenders who specialize in personal loans. The borrower applies to these financial institutions if they have a medical expense that is not covered by standard health insurance. A potential borrower can apply in person or online. After receiving approval from the lender, they receive a lump-sum amount to a bank account. Further, the borrower pays equal monthly payments throughout the life of the loan.

Different types of personal loans for healthcare financing from different lenders that offer medical credit work a little differently. For example, traditional personal loans may not give the borrower funds immediately but allow them to get a large loan amount. At the same time, a Lightstream loan allows the borrower to get a smaller loan amount, but usually, loan funds come on the same day.

This type of personal loan can also be used for debt consolidation. The borrower can take medical financial assistance from a financial institution that combines existing medical credit card debt or personal loans. This allows them to reduce the monthly loan fee and be able not to keep track of multiple payment calendars. With debt consolidation loans, several payments are combined into one.

Despite the fact that most lenders issue unsecured medical debts, some companies may issue secured personal loans to finance medical bills. A secured loan is a type of loan that requires collateral in the form of real estate, a car, or a certain amount of money. Such a loan offers a loan amount more than an unsecured loan. Loan terms will be more flexible, and interest rates will be lower for such a loan, as it is less risky for the lender.

How to apply for a medical loan

Before applying for medical financing, the borrower needs to check whether they qualify for all the requirements of the financial institution. The first requirement is the minimum annual income of the borrower. Each lender requires a different amount of annual income without the deduction of taxes. Since the loan is unsecured and does not require collateral, the lender must make sure that the borrower will repay the loan.

The most important criterion for almost any loan is a score loan. Usually, a minimum credit score of 670 is required for a medical loan. The borrower needs to make sure that the lender makes a soft credit check that does not affect their credit score. The higher the borrower's credit score, the lower the interest rates will be, and the repayment terms will be more flexible.

There are bad credit personal loans designed to cover medical costs that have low credit score requirements. A minimum credit score of 560 is required for this loan. However, the borrower should have a minimum credit score of 600 since this way they will have a better chance of getting loan approval from the lender.

For medical loans, as for any personal loan, it is important not to have bankruptcies and late loan payments in the borrower's credit history. Before applying for a medical loan, the borrower must make sure that he has not filed for Chapter 7 and Chapter 13 bankruptcies in the last seven years and has not had a total of more than 30 days late for payments on previous loans.

Most lenders offer personal loans that can be obtained online using an online application process. To submit an online application, the borrower needs to go to the company's website and click on the "Get Started" or "Apply Now" button. Next, they need to fill out an application. The application process usually takes from 5 to 15 minutes. In the application, the borrower needs to fill in his name, phone number, email, date of birth, and home address. In addition to personal information, the borrower must specify the loan purpose and loan amount that they want to take. They also need to provide the lender with employment information, namely the place of work, the employer's phone number, and the position held. The borrower will need to enter information about the source of income and the amount of annual income. Lenders usually give loan acceptance on the same day. To prove employment and income, the borrower may need to provide some documents:

• Paystubs;
• Tax returns;
• W-2s and 1099s;
• Bank statements.

To prove the address of residence, the lender may require the following:

• Recent utility bills;
• A copy of the lease or rental agreement;
• Rental insurance, which shows the residential address.

To confirm the identity of the borrower, an online lender may require the following documents:

• Driver's license;
• State-issued ID;
• Passport;
• Certificate of citizenship;
• Birth certificate;
• Military ID.

Many online lenders allow the borrower to have a co-borrower. A potential borrower who has bad credit can get approval if their friend or relative has a good credit history. Moreover, the presence of a co-borrower allows the borrower to get better repayment terms since the lender will have more confidence in them.

Ways to pay medical loans back

Repayment terms for medical financing usually range from 12 to 60 months and depend on the conditions of a particular lender. To reduce monthly payments, the borrower should review all the offers on the online lending market. The borrower should also discuss with the credit consultant the most favorable offers from the lender. If the borrower's credit score is not so high to reduce interest rates, the borrower is recommended to look for a co-borrower.

Lenders recommend setting automatic monthly loan repayments. These payments are made using ACH debit. This method has several advantages. Automatic loan repayments allow the borrower not to keep track of the payment calendar and, at the same time, not to be late with the payment. Lenders do not charge fees for automatic transactions.

The borrower can also discuss sending checks by mail with the lender. However, in this case, the borrower needs to send checks in advance so that the payment arrives on time. Moreover, the lender can take a commission from each payment using a check.

Some lenders offer the borrower to make online payments manually. To do this, the borrower can use an account on the company's website or a mobile application if the lender has one. Usually, the company does not charge a commission for such payments. Some lenders may offer the borrower, not the most popular payment methods, such as payment by phone and wire transfer. However, each transaction made by such methods will require payment of a commission.

Legal regulations of medical loans

National Consumer Law Center issued Model Medical Debt Protection Act. This act describes the activities of the Patient Protection and Affordable Care Act (ACA). The ACA monitors and regulates the activities of non-profit hospitals and financial assistance programs. This act controls the determination of whether a particular person is eligible for financial assistance. The National Consumer Law Center is also strengthening consumer protection rules for medical loans. Moreover, the organization also supports cost control, limits on facility fees, and restrictions on the issuance of unexpected medical bills.

The true cost of a medical loan

This type of personal loan can cost the borrower quite expensive. To avoid unnecessary overpayments, the borrower should consider alternatives to medical loans, such as a medical credit card. Medical credit cards may have interest fees less than other personal loans for healthcare financing, but may have higher credit requirements and higher limits for the loan amount.

Medical loans have interest rates slightly higher than other types of personal loans. On average, the annual percentage rate (APR) for this type of financing ranges from 6% to 36%. In addition to the fact that the borrower must pay interest, the borrower will also pay some additional fees, such as origination fees, application fees, late fees, prepayment fees, and returned check fees.

1. Origination fees. The origination fee is a charge that the lender takes for his work. The borrower receives funds with the origination fee already withdrawn. Usually, the origination fee varies from 1% to 10%. In the context of the rapid development of the online lending industry, it is not difficult to find a lender that offers an origination fee even below 1%.
2. Application fees. Some lenders charge a separate fee for accepting an application from the borrower. Usually, this fee is small. However, the borrower should look for a lender who does not charge the application fee from the client since there are a large number of such lenders.
3. Prepayment fees. Prepayment fees or prepayment penalties are commissions for paying a loan early. Some borrowers want to reduce the interest payment by making payments several months in advance. Some lenders punish such borrowers with the help of prepayment fees. A modern credit union does not charge a prepayment penalty from the client but takes full payment on interest, regardless of whether the loan is closed ahead of time.
4. Late fees are a commission for late payments. Usually, the commission amount is about $15. To avoid this commission, the borrower is recommended to install ACH debit automatic monthly payments on the loan or to closely monitor the payment calendar.
5. Returned check fees. Returned check fee is a commission for lack of money on the borrower's account. The lender still makes the transaction and adds the missing amount to the loan amount. For this, the borrower, in addition to the missing amount, will also have to pay a returned check fee. The fee amount can range from $20 to $40.