Personal Loans for Medical Expenses: A Smart Option?
Unexpected medical bills can strain your finances, but personal loans can offer a practical solution. Here’s why they’re worth considering and how they impact your credit.
Why Choose a Personal Loan?
Immediate Funding: Many lenders provide funds within 1-2 days, ideal for urgent medical costs like surgeries or ER visits.
Lower Rates Than Credit Cards: Personal loans often have rates of 7-12%, compared to 20%+ for credit cards, making them a cheaper option for large bills.
Flexible Use: Unlike medical-specific loans, personal loans can cover related costs like travel for treatment or lost wages.
Credit Benefits
Build Payment History: On-time payments improve your score (35% of FICO).
Reduce Credit Card Reliance: Using a loan instead of a credit card keeps your utilization ratio low (30% of FICO).
Credit Mix: Adding an installment loan diversifies your credit profile (10% of FICO).
Things to Watch Out For
Qualification: You’ll need a decent credit score (typically 600+) for favorable rates. Poor credit may lead to higher rates.
Repayment Burden: Ensure the monthly payment fits your budget to avoid missed payments, which hurt your score.
Alternatives: Check if your provider offers payment plans or if you qualify for medical bill assistance programs first.
Example
A $10,000 medical bill paid with a 3-year personal loan at 9% interest costs about $317/month. The same amount on a credit card at 18% could cost $400+/month if paid off over the same period.