We wish that all of our expenses came in a tidy spreadsheet with dates, times, and amounts clearly marked. Unfortunately, this is not the way life works. Emergencies happen. We slip down the stairs or trip on our children’s toys. The reality is expenses from these mishaps can become quite costly, no matter if you have pristine credit or bad credit. So, you may be considering whether or not it’s wise to take out an unsecured medical loan with bad credit.
In order to decide if an unsecured medical loan is your best option, you have to fully understand the limitations of bad credit and how unsecured personal loans work.
We will cover:
- The differences between secured and unsecured loans
- Fixed-rate vs variable rate loans
- Other options for repaying medical expenses
- Medical debt consolidation
- How to find the best unsecured medical loan
- How does bad credit affect your options for medical debt repayment
You will learn that an unsecured personal medical loan is a great way to consolidate multiple medical bills into one payment so that you can get the cash you need in advance of accruing more medical bills. The set payments and terminal repayment length can help to better manage your finances.
Whether you’re using a personal medical loan to pay back an emergency room visit, for plastic surgery to improve your self-image, or to bring that bundle of joy into your life through in vitro fertilization, this article will help you understand personal unsecured medical loans and the process you’ll go through to obtain one.
Is an Unsecured Personal Loan Your Best Option for Medical Expenses?
When comparing types of loans, it can become quite tedious to unpack the various kinds. So, we’ve broken down the categories to help you better understand your loan options.
Secured vs. Unsecured
The terms “secured” and “unsecured” can sound like loan jargon, but the difference between the two can be easily explained.
A secured loan implies that the lender secures their investment by requiring that you give up something if you don’t make your payment. This “something” is collateral. So, a bank can foreclose on a house or a lender can repossess a car if the borrower fails to pay back the money they borrow to purchase these items.
An unsecured loan does not have possessions attached to it, so the lender cannot take away the borrower’s property as a form of repayment. These loans include credit cards, personal loans, and student loans.
It can be easier to obtain a secured loan for most people. These are less risky to lenders because people need the collateral at risk of repossession. They usually have lower interest rates, too. Unsecured loans often have higher interest rates because the lack of collateral means the risk is higher for the lender.
So, what happens if you stop repaying an unsecured loan? When you default on an unsecured loan, you can expect a negative impact on your credit and your lender to turn your debt over to collections. The lender can also take you to court for what you owe.
Fixed- Rate Vs. Variable Rate Loans
As you’re comparing loans, you may notice there the descriptions “fixed rate” and “variable rate.” These tell you what to expect your interest to do over the lifetime of your loan.
A fixed rate loan has a set interest rate that will not change over the course of repayment. Your interest rate will be the same month after month. Most student loans: mortgages, car loans, and unsecured personal loan have fixed interest rates, but every now and then, you’ll see one that has a variable interest rate.
Variable interest rates change over the lifetime of your loan. A variable interest rate, or floating rate, will increase and decrease based on a well-known index. This accounts for inflation and changes in the overall economy. These loans typically begin with lower interest rates than fixed interest rate loans, but they usually increase over time.
Variable interest rate loans can have caps. An interest cap is a percentage agreed upon by the lender so that your interest rate will never exceed a certain amount, even if the index it’s attached to skyrockets.
If you like the stability of know what you’re going to pay every month then you will want to choose a fixed rate loan. If you think you can pay down your loan quickly, and possibly save money by paying it off and paying a prepay fee, you may want to choose a variable rate loan.
What Are Your Options for Medical Bills Other Than Unsecured Personal Loans?
Medical bills and expenses are unique in that they can occur without warning, build as conditions become more complicated, or increase as your hospital stay becomes longer and longer. You cannot avoid medical expenses when your life or the life of a loved one is at risk which can make obtaining money dire.
While an unsecured loan can be a great option for many people, it’s not the only option. When you’re hit with a large medical bill, you are obligated to pay for the service. But there many options that you can explore to discover which is best for your circumstances.
A Payment Plan with the Medical Provider or Facility
If your doctor, dentist, or hospital has the option to start a payment plan to repay your debt, you may want to choose this if you cannot afford a large lump sum at the time the medical bill is due.
Pros: Payment plans can be easier to pay and put less strain on your finances at one time.
Cons: A payment plan usually comes with interest or a fee. You may not be able to negotiate the length of time you have to repay the debt.
An Income-Based Hardship Plan
Medical bills happen to people of all economic levels. This option is designed for those people who make substantially less than what they’d be expected to repay. Sometimes, lower-income individuals can reduce their bill if they can prove financial hardship.
Pros: Smaller payments can be more manageable.
Cons: A longer repayment period can make it harder to re-stabilize your budget. If interest is charged, a longer repayment period can result in more interest over time.
Medical Credit Card
These are often offered by the medical office and can only be used for medical related expenses. They will still require your personal information and credit inquiry.
Pros: Many of these credit cards have an interest-free grace period.
Cons: If you cannot repay during the grace period, the interest rate can become quite hefty. If you have bad credit, you may not get approved or you can have a high interest rate. The inquiry of your credit score can also ding your credit.
Hire a Medical Bill Advocate
There are professionals that understand the ins and outs of medical billing better than the average person. They can often examine your bill, find any billing errors, and negotiate with the hospital for you.
Pros: When you are sick, it can be difficult to advocate for yourself. If they find errors or are successful, they can lower your medical bill.
Cons: They charge fees that can offset your potential savings on your bill.
A Secured Personal Loan
A secured personal loan is a way to borrow money from a lender while putting collateral down. They will expect you to leverage your car, home, or some other valuable.
Pros: You get money with a set repayment plan and interest rate. You can get money for future medical expenses.
Cons: You can lose your property if you don’t make regular on-time payments.
How Does An Unsecured Personal Loan Compare to Your Other Options?
An unsecured personal loan allows you to receive borrowed money then repay it over a set period time of 2, 3, 5, and 7-year terms. You do not lose property if you default on an unsecured loan. Termed repayment plans can be more manageable with your budget. You can request loan amounts between $500 and $70,000.
Another advantage of an unsecured personal medical loan is that you can consolidate your medical expenses into one payment. This will help you better organize your bill and let you more easily budget. You can also lower your interest rate if you have been paying for your medical expenses on credit cards.
Many people choose to take out an unsecured medical loan because you can borrow more than your immediate medical bills. For example, if you’re expecting to have to follow up with your doctor, go to physical therapy, pay for prescriptions, or miss work, you can take out enough money to make up for lost income and pay for future medical expenses.
What is Medical Debt Consolidation?
If you’ve visited various doctors, clinics, or hospitals, you may be dealing with a bill from each. This doesn’t even include the bills from pharmacies, physical therapy, or various over-the-counter medical supplies. While the bills keep arriving in your mailbox it can be hard to keep track of what you owe to each doctor. One way people solve this chaos is through debt consolidation.
Medical debt consolidation is when a person takes out a loan to pay off multiple debts. They receive their loan funds and pay their medical bills will the borrowed money. Then, they only have one repayment to worry about, with one interest rate, and a definite term end date. This can make managing your finances easier and provide you with the stability of being able to budget for your debt.
By successfully repaying your unsecured medical loan, over time, you can improve your credit score by demonstrating that you can make on-time payments and by increasing the variety of your loans.
How Does Your Bad Credit Affect Your Repayment Options for Medical Debt?
While having bad credit doesn’t reflect who you are as a person, lenders use this number to learn more about your history as a borrower. For people who haven’t had the opportunity to grow and develop their credit histories, this can be problematic. Bad credit can also present difficulties for people in need of money to pay medical expenses. You may be limited in what lenders will work with you and what credit rates those that will offer you.
When considering a bad credit unsecured medical loan, you need to know how your credit score affects the process and outcome.
How Does Your Credit Score Compare?
The most common credit score model is the FICO (Fair Isaac Company) score. They will send your score to lenders that ask about your financial history. This score can fall anywhere from 300 to 850. The major credit reporting bureaus include TransUnion, Equifax, and Experian. The bureaus ultimately score how financially dependable or lend-worthy you are.
On the credit score scale, you are considered to have bad credit if your credit score falls below 619. In the eyes of lenders, they will probably use a ranking system to decide where you call in terms of your credit. It probably looks like this:
- 300-499: bad credit
- 500-579: poor credit
- 580-619: low credit
- 620-679: fair credit
- 680-699: good credit
- 700-850: excellent credit
Falling below the ”bad credit line” affects your options for finding lenders and your potential interest rates. Not as many lenders will be willing to loan you money, and those that will be will often charge higher interest rates to account for the risk.
How Do You Find Medical Loans for People with Bad Credit?
Just because your credit score isn’t good, doesn’t mean you are out of options. You can find lenders that will loan to people with low, poor, and bad credit scores. There are some things you want to be aware of to prepare to get the best loan for bad credit.
Shopping for loans can be stressful, confusing, and frustrating. This can feel even harder when you have bad credit and you need funds for a medical emergency. The last thing you want to happen is to pour your energy and time into filling out questionnaires and having your credit checked time and time again just to hear “no.” On the other hand, it can be scary to feel like you can only find a lender that will charge extremely high-interest rates or has limits that don’t cover your medical expenses.
Your best bet is to check your credit yourself and know what score a lender is willing to work with. This will reduce the number of hard inquiries on your credit score which can take a toll and further damage your score.
Luckily, there are lenders that will pay out within 24 hours, which can give you peace of mind, and help you get on the right track for handling and planning for your debt.
What You’ll Want to Prepare to Show a Potential Lender
In a stressful time, it’s easy to become overwhelmed, especially when your health is at risk. Other times, you won’t want to leave your loved one’s bedside unless absolutely necessary. This is why you want to make sure you know what a lender will want to see.
A lender needs to know what your financial status looks like and that you can repay your loan. To make the process smoother and quicker. Make sure you have:
- Proof of who you are, like: your driver’s license, passport, visa, or social security card.
- Proof you can pay them back: 3 month’s worth of pay stubs, a bank statement, a letter from your employer.
- Proof of where you live, like: your mortgage agreement, voter’s registration a utility bill, or your lease
- Further proof that you’re employed. Many lenders will ask for your employer’s contact information.
Know Your Options
After finding a lender that will work with your credit score, make sure the loan and repayments options are the best for you and your circumstances.
- Do the payment amounts work for you?
- Does the term length of the loan work for you?
- Is the loan amount enough to cover your expenses adequately?
Make Sure All of the Information Is Accurate and you Understand the Terms
Even though lenders will look into your finances, you are ultimately responsible for repaying any loans you receive. Make sure your income is accurate and all financial factors are taken into account. Your lender may ask for documentation we haven’t listed or for clarification on your finances to get a better picture of what your situation is.
Don’t be alarmed if they need further documentation, especially when your credit is bad. This just means they want to see the full picture.
In addition to making sure all the information you disclose with the lender is correct, you will want to make sure you fully understand what your lender expects of you. You will be given a set amount of time to repay your loan, typically 2, 3, 5, or 7 years. You will repay a certain amount of the principal (the amount you borrowed), in addition to a certain amount of interest every month.
If you make payments that exceed your payment amount, and you pay your debt off early, your lender may require a prepayment fee. This is a certain amount of money that helps the lender recoup the amount they lost in interest by you paying down your debt quickly.
Final Thoughts
If you need money for medical expenses with a bad credit score, there are options. Always be prepared with the correct documents and to provide any additional information a lender needs to know that you’re able to repay your debt.
Unsecured medical loans can be an effective way to reduce the stress of multiple debts through medical loan consolidation, and they can provide you with funds for upcoming medical bills you anticipate. You can also use a medical loan to help keep your home or car if you’re out of work due to injury or other life circumstances.
If an unsecured loan is right for you, make sure you find the best deal and right terms for you.