Medical emergencies can happen to anyone, and for a lot of people, the cost of surgery or special treatment can be truly overwhelming.
Routine diagnostic procedures can cost anywhere from $1,000 to $3,000, not to mention surgeries that can instantly empty your whole bank account.
Even if you have health insurance, it may not cover a specific procedure, making patients look for other ways to pay their medical bills like using special credit cards or applying for medical loans.
Each method has its benefits and drawbacks that you should be aware of.
In this article, we’ll review the pros and cons of medical credit cards and medical loans.
What to Choose?
Online lending has increased in popularity during the last few years since the start of the Covid era.
A lot of digital companies like LendUp, SoFi, Upstart, Fundbox, and others, have started offering various lending services with much better interest rates and faster application processing time.
Medical loans can cover a vast range of expenses, be it emergency visits or elective surgery.
Apart from medical loans, you can still use health savings accounts, installment plans, insurance, plain old cash, and now even medical credit cards.
Let’s look at the last option first to see whether it has any benefits compared to others.
Medical Credit Cards: Things to Know
A lot of financial institutions like Wells Fargo or Synchrony Financial offer to use special medical credit cards that cover a wide range of medical procedures.
They are similar to store credit cards with their use restrictions and a certain payment structure.
As a rule, you can use them only for medical services at designated healthcare providers, and for nothing else.
Your credit rating will define the balance limit of your medical credit card. Usually, they differ by card issuer.
As for the interest rates, the average credit card’s APR is around 27%.
And here lies the biggest issue with these cards, because a typical credit card offers a 20% APR.
This puts medical credit cards at a huge disadvantage compared to other payment options, especially when you can simply use the usual card and have better rates.
As a rule, medical credit cards have a promotional 0% APR period, and this is probably the only feature that makes this payment method worthwhile.
Nevertheless, if you do choose to use it, make sure you can pay off the debt before the high interest starts.
This type of financing may seem convenient at first, but in the end, you’re better off using a regular credit card.
This way, you won’t have an additional line of credit that can lower your overall score.
Medical Loans: What to Know
Nearly all financial institutions offer medical loans that can cover a lot of expenses ranging from planned care to various cases of emergencies, depending on the terms of the loan.
As a rule, you take a medical loan for a specific procedure ahead of time, so it’s not the money you can spontaneously use on any kind of medical emergency.
If you take a medical loan, it will usually cover only that specific treatment and nothing else (e.g. an operation or a root canal procedure).
Medical loans vary and you can apply for a loan between $1,000 and $200,000 depending on your credit score.
As far as the interest rates are concerned, medical loans can range from 3.99% to 16.99% depending on the company you choose.
Usually, online lenders offer much better rates, but they may require having a certain annual income or a minimum credit score of 660-680.
Still, you can opt for peer-to-peer loans that offer smaller sums of money but with fewer restrictions, so you should explore all the options before applying for a medical loan.
Factors You Need to Consider
We often decide to apply for a medical loan under dire circumstances and don’t have the time to think things through.
That’s why you need to always keep a few factors in mind that will end up saving you a lot of time and money in the future.
- The loan term. Always go for a loan that fits your budget and doesn’t last for too long. A long-term loan will indeed be less demanding and you’ll have lower monthly payments, but you’ll end up paying more interest in general.
- Are the rates fixed or variable? Variable rates will change according to the market, while fixed rates mean that your interest remains the same throughout the whole term of the loan.
- What’s the APR (annual percentage rate)? These rates are based on your credit score and can vary greatly from one financial institution to the other. This is the actual annual cost of your loan including all the payments.
Conclusion
When there’s a medical emergency, many people tend to act first and think about the consequences later.
There are a lot of different payment solutions you have when it comes to covering medical bills.
Some financial institutions advertise medical credit cards as a viable option, but they’re only as good as the special offers they have.
As a rule, later you will get higher interest rates compared to usual credit cards, making medical ones not the best solution.
As far as medical loans are concerned, you need to keep in mind different factors like the annual percentage rate, loan term, and whether the rates are fixed or variable.
You can get good deals with medical loans, but the conditions vary and you need to have a high credit score to get the best terms.
