The average personal loan rate is 11.54% as of December 6, according to a Bankrate survey. Personal loan interest rates are trending higher over the past several months, increasing by about half-a-point since early July:
Personal loan rates vary widely based on creditworthiness. Borrowers with very good or excellent credit scores will see much lower interest rates than those with fair or poor credit. Often, borrowers with bad credit will apply for a secured personal loan that uses an asset as collateral in order to achieve lower rates:
A medical loan is typically an unsecured personal loan that can be used for medical expenses. An unsecured loan does not require collateral. Your loan funds can be applied toward just about any medical cost, including health insurance deductibles, dental procedures, and physical therapy and rehabilitation services.
You can also use a medical loan to consolidate medical bills. If you qualify for a loan with a low interest rate, you could simplify your monthly budget and save on interest.
Loan qualification is usually based on the borrower’s credit history and income, but each lender sets its own criteria. Here’s what most lenders evaluate when you apply for a medical loan:
- Income. Lenders may set a minimum monthly or annual income, or they may simply check that you earn enough to cover your loan payment after repaying other debts, like your mortgage or student loans. Generally, a higher income and lower debt load may qualify you to borrow more.
- Credit score. A good credit score could help you get approved for a lower interest rate, which saves you money. Applicants with bad credit or no credit often pay higher interest rates than borrowers with good credit.
- Credit report. Lenders might also look for negative items on your credit report, such as late payments or collection accounts. Even with these items on your record, you might still qualify for a medical loan, but take a close look at your loan agreement to make sure your interest rate is affordable.
- Loan terms. “The actual terms of the loan – how much loan you are looking for, the length of the term – may impact the interest rates you can qualify for,” says Elise Nussbaum, a financial coach with TrustPlus, a service of Neighborhood Trust Financial Partners, which offers financial wellness benefits.
Pros
- Medical loans can be used to consolidate medical debt, which allows you to combine multiple high interest loans into one lower interest payment.
- If you require necessary or urgent medical assistance and can’t afford it, medical loans will allow you to get the treatment you need.
- Most medical loans are unsecured and don’t require a house or car as collateral.
Cons
- Personal loans tend to have higher interest rates than other forms of financing, but you may be able to get a lower rate depending on your credit score.
- You may be able to get something better, such as no-interest or low-interest financing from the health care provider, or financial aid if your expenses are from a nonprofit hospital.
- Some medical loans can take up to a week to finance, which may not be quick enough in an emergency.
If you think a medical loan is right for you, here is how to apply:
- Figure out how much to borrow. Ask your health care provider for an estimate, and find out whether you can negotiate, qualify for financial assistance or get a payment plan. “These options might even be preferable to a medical loan,” Nussbaum says.
- Check your credit. You’ll need a strong credit history to receive the best interest rates, says Leslie Tayne, a New York-based debt resolution attorney and personal finance expert. “In this instance, a good credit score is 700 or higher,” she says.
- Research lenders and loans. Try to get three to five loan estimates, and then compare loan amounts and terms, qualification requirements, interest rates and fees. Some lenders let you prequalify, which means they estimate loan terms with a soft credit inquiry. Check reviews and ratings using resources such as the Better Business Bureau and the Consumer Financial Protection Bureau’s Consumer Complaint Database.
- Select a lender and apply. If you’re approved, read the fine print, Tayne advises. Make sure you understand your rate and all fees and penalties before signing.
- Receive the funds. You might wait a few days for the money to hit your bank account, depending on the lender.
Be sure to compare lenders before determining which medical loan is right for you. Consider the following factors:
- Annual percentage rates. Be sure to look at both the interest rate and APR to make sure you have a complete picture of the overall cost of each loan you consider.
- Loan speed. Consider how quickly you need money to hit your account and each lender’s application process. Some lenders may fund a loan within 24 hours, while others can take up to a week.
- Loan terms. The length of the loan will affect your monthly payment and the total cost of borrowing money. Consider whether you need a lower monthly payment or would rather pay off the loan as quickly as possible.
- Fees. Some lenders charge origination fees to cover the cost of lending money, and these fees can range from 1% to 10% of your loan amount. Be sure to note a lender’s origination fee, since it will likely reduce the loan proceeds you actually receive.
Weigh the pros and cons of a medical loan before using one to pay for medical expenses. In many cases, “It may make sense to take out a medical loan when faced with necessary medical expenses where you cannot pay for it yourself and your insurance doesn’t entirely cover the procedure,” Tayne says.
But also consider whether:
- You can qualify for good loan terms. Before taking out a medical loan, research the fees – and when they apply – and know the interest rate you will pay. The National Consumer Law Center, a nonprofit advocacy group, says loans with fixed APRs of less than 36% are generally considered affordable. Of course, a lower rate could help you save more money.
- You can get the funds quickly. This is especially helpful in a medical emergency or if you need to pay your doctor a deposit or buy medicine before a procedure.
- You can use the funds to pay for medical expenses. Read the terms and conditions before signing for the loan, because some lenders may restrict usage.
A medical loan might not be your best option if:
- You will have high loan costs. Extra fees and steep interest charges can quickly drive up your loan balance and cause you to fall behind on payments. “When left unpaid, bills can turn into unmanageable medical debt,” Tayne says.
- You can find cheaper options. Because debt can lower your credit score and strain your budget, always research affordable alternatives. If there are none, Nussbaum says, “Some deep consideration would need to happen if the loan payment per month is unaffordable for the individual’s budget.”
- You can’t borrow the amount you need. Lenders usually set minimum and maximum limits on how much you can borrow. If the amount you need falls outside of this range, you might need to consider alternatives.
Ask about a payment plan. Your health care provider may be able to spread out the amount due over 12 or 18 months with no interest, Tayne says. “That’s a great alternative to a loan with interest – and it doesn’t hit your credit,” she says.
Open a medical credit card. Your doctor may offer a medical credit card with deferred interest for a limited time on eligible health care expenses. You will need to pay off your balance before the promotional rate expires to avoid retroactive interest charges.
Use a credit card with a 0% introductory APR. Some traditional credit cards offer a 0% APR for 12 to 21 months and earn cash back rewards or airline miles for your spending. Plan to pay off the balance before the standard interest rate applies. Keep in mind that you’ll typically need very good credit to qualify for such promotional offers.
Use a personal line of credit. This is typically an unsecured revolving line of credit with a variable interest rate, and you can draw from the account as needed and pay it back with interest, like a credit card. Personal lines of credit range from about $5,000 to $500,000, and interest rates can be lower than credit cards, but you will need a strong credit history to qualify.
Tap home equity. If you have 15% to 30% equity in your home, then you may qualify for a home equity loan or line of credit, called a HELOC. But your property is collateral for the loan, and you risk losing it if you can’t keep up with payments. “Avoid these if at all possible,” says Barry Coleman, vice president of counseling and education programs at the National Foundation for Credit Counseling.
Consider a 401(k) loan. Loans are capped at the lesser of $50,000 or half of your vested account balance, and repayment must occur within five years. If you leave your job before you pay off your 401(k) loan, you could end up trading your medical bills for a huge tax bill or an insufficient retirement fund.
Explore state assistance programs. If you need more help paying for or getting medical care, check for state and local government programs and nonprofits that offer aid. Try these resources:
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. Personal loan companies are evaluated based on customer service ratings, interest rates, maximum loan term, minimum and maximum loan amounts, minimum FICO score, online features, and origination fees.
The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.
Your loan funds can be applied toward just about any medical cost, including health insurance deductibles, dental procedures, and physical therapy and rehabilitation services.
You’ll need a strong credit history to receive the best interest rates, says Leslie Tayne, a New York-based debt resolution attorney and personal finance expert. “In this instance, a good credit score is 700 or higher,” she says.
A good credit score could help you get approved for a lower interest rate, which saves you money. Applicants with bad credit or no credit often pay higher interest rates than borrowers with good credit.
To recap, here are the picks: