Can you pay off medical expenses with a personal loan?

Roughly 20% of U.S. households have medical debt totaling an estimated $88 billion in medical bills on credit reports, according to the Consumer Financial Protection Bureau. Unfortunately, medical debt is the leading cause of bankruptcy, the National Consumer Law Center reports. If you’re one of the millions of Americans struggling with medical debt, you have several options for relief.

Applying for your provider’s financial assistance program, negotiating a no-interest payment plan with them, and checking your bills for errors are all things you can do before your bills get out of hand. If your debt has already been sold to a collector, you can still try to negotiate a payment plan with them, but a personal loan is also an option.

• Can you use a personal loan to pay for medical expenses?
• How to get a personal loan for medical expenses
• Where to get a personal loan for medical expenses
• Pros and cons of using a personal loan to pay off medical expenses

Can you use a personal loan to pay for medical expenses?

You can use personal loan funds to pay for almost anything, including medical bills. Unsecured personal loans aren’t secured by any form of collateral, so their use isn’t as limited as a mortgage might be.

With a personal loan, you’ll borrow a lump sum of money up front and repay it over an agreed-upon period of time. Personal loans have fixed interest rates, so your monthly payments won’t change over the life of the loan. You’ll need to meet a lender’s requirements to qualify, which may include:

• Credit score — Lenders look at your credit score to see how well you manage your debt and to determine what interest rate to offer you. Some lenders have minimum credit score requirements that you’ll need to meet.
• Income — You may need to show proof of income when you apply. Lenders want to make sure you have enough income to repay the loan.
• Debt-to-income ratio — Your DTI ratio is the percentage of your gross monthly income that goes toward your debt payments. If your DTI ratio is too high, it could signal to a lender that you’ll have trouble taking on additional debt.

How to get a personal loan for medical expenses

To apply for a personal loan for medical expenses, follow these four steps:

1. Check your credit score. Before you apply for a loan, it’s important to know where you stand. You can request free copies of your credit reports from the three main credit bureaus by visiting AnnualCreditReport.com.
2. Shop around and compare lenders. Get prequalified with several different lenders, which won’t affect your credit score. You’ll need to be prepared to list the loan amount you need, your gross annual income, any monthly debts and bills like rent, and a few other identity questions. This gives you an idea of what rates and terms a lender might offer you. If you have good credit you’ll qualify for lower rates, but you can also get approved for a personal loan with fair or even bad credit.
3. Choose a loan and apply. When you officially apply for a loan, you’ll need to answer more in-depth questions about your income and expenses and may need to provide documentation, such as bank statements, pay stubs, or W-2s.
4. Receive your loan funds. If you’re approved you’ll sign a loan agreement and the lender will send your loan funds through direct deposit, wire transfer, or a check in the mail depending on the loan funding option you choose.

Things to consider about personal loans for medical expenses

Before applying for a personal loan, you’ll want to know the exact amount you need to pay off your medical bills. This is the perfect time to dispute any inaccuracies in your medical bills and negotiate with creditors. Request an itemized bill from your provider and compare it against your Explanation of Benefits (EOB) from your insurance company. Check for any duplicate billing codes, inaccurate billing codes, and discrepancies between what your itemized bill says your insurance paid and what your EOB shows your insurance paid.

Even if there are no inaccuracies to get rid of, you should be able to get a discount for paying in full with your personal loan money within a certain period of time. Negotiating a discount for a lump-sum payment may be able to save you 20% to 66% on your medical bills, according to NOLO. It may also be possible to negotiate with them to delete the bill from your credit report if it’s in collections. Whatever agreement you come to, make sure you get it in writing from whoever holds the debt.

If you paid for your medical bills with a product like a credit card or home equity loan, you won’t be able to negotiate those bills but you can still pay them off with a debt consolidation personal loan. Personal loans usually have much lower rates than the higher interest rates associated with credit card debt.

Where to get a personal loan for medical expenses

You can get a personal loan for medical expenses from banks, credit unions, and online lenders. Some lenders specialize in financing for medical expenses. If you have good to excellent credit you’ll qualify for the lowest interest rates. But many lenders also work with borrowers who have fair or bad credit.

Even if you don’t qualify for a personal loan, you may be able to negotiate a payment plan with your medical provider.

Pros and cons of using a personal loan to pay off medical expenses

If you aren’t able to negotiate a no-interest payment plan with your medical provider, and you don’t qualify for financial assistance, a personal loan could help you keep medical bills off your credit report.

Here are some pros and cons of using a personal loan to pay off medical expenses you should be aware of:

Pros of personal loans for medical costs

• You’ll have one bill to pay monthly, instead of keeping track of several bills from multiple healthcare providers.
• If your medical debt has been sent to collections but you pay it off with a personal loan, it will be removed from your credit report, which can improve your score over time.
• You’ll typically receive a lower interest rate than what you’d get with a credit card, especially if you have good to excellent credit.

Cons of personal loans for medical costs

• Medical providers or hospitals may offer no-interest payment plans for medical bills, so taking out a personal loan and paying interest to borrow the money might not make the most sense.
• You’ll likely pay more over the life of the loan than if you set up a payment plan with your medical provider.
• Depending on your credit and income history, you may not qualify for a personal loan, or you may qualify for one with high interest rates.