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Medical Loans: What to Know

First Republic Bank
February 16, 2022

Even with health insurance, annual out-of-pocket liabilities – from family planning procedures to emergency room visits and more – can be substantial. According to a 2021 survey conducted by KFF.org, up to 46% of insured adults in the U.S. reported difficulty affording their out-of-pocket healthcare costs, and nearly 27% reported difficulty affording their deductible.

Thankfully, whether you are concerned about an unexpected medical expense or need cash on hand for an out-of-pocket procedure, there are several financing options available that can help you manage health-related expenses.

In this article, we will go through the basics of medical loans, how they work, and the financial solutions available to you to finance medical related expenses.

What are medical loans?

Medical loans are a type of personal loan used specifically for medical-related expenses. In general, medical loans are unsecured loans that don’t require collateral. They're typically offered by online lenders, though some traditional banks and credit unions also offer medical loans as well.

Medical loans can be a helpful financial product, allowing consumers to pay for a wide array of planned and unplanned medical expenses including:

  • Laser vision correction surgery (LASIK)
  • Hearing aids
  • Cosmetic surgery
  • Weight loss surgery
  • Prescriptions

In addition, they can also be used for medical debt consolidation, pay for out-of-network healthcare expenses or to cover deductibles and copayments.

How do medical loans work?

Funds from a medical loan are intended for an individual’s or a family’s healthcare expenses. If you are approved for a medical loan, you receive a lump sum of money to use for medical-specific costs. You then pay the loan back over a set period of time (the loan term) with fixed monthly payments. Typically, a portion of each payment goes toward the principal balance, while some goes toward interest.

While medical loans generally have fixed interest rates, we recommend you carefully research your options in advance as interest rates, terms and conditions and qualifying factors may vary by lender and /or loan product.

Qualifying for medical loan financing

Typically, lenders will review your employment status, income, monthly expenses, creditworthiness and other factors to determine whether you qualify and set your loan terms. They may also run a credit check, and as long as your credit scores are in the good-to-excellent range, you should be able to qualify for a loan with lower rates.

Generally speaking, a good to excellent credit score will help you secure low interest rates for loans for medical bills. Ideally, your credit history should reflect on-time payments, a variety of credit products, low balances and no negative activity (collections, bankruptcies, etc.).

The loan amount also depends on how much income you have remaining after household expenses and existing debt payments have been deducted.

Is a medical loan right for you?

Medical loans can be a helpful financial tool for you to navigate medical bills without disrupting your current cash flow or putting other financial goals on pause. However, a medical loan may not always be the best option. Here are some general questions to consider when determining if a medical loan is the right option for you:

  • Is my expense eligible for a medical loan?
  • How much money would I need to borrow?
  • How quickly do I need the funds?
  • How much extra would I be paying in interest?
  • Do the repayment terms feel reasonable?

Once you have a better idea of what your priorities are, it is recommended to consider all your available medical financing options.

Medical loans vs. other financing options

A specialized loan for medical bills is not your only financing option. Depending on your unique needs, you may consider a variety of financial solutions to meet medical expenses, each with their own benefits and potential drawbacks.

Below are a few alternatives to medical loans that you may want to explore before making a final decision:

1. Personal lines of credit

In general, a personal line of credit is a flexible financing option to cover costs of planned or emergency medical and dental procedures. With a personal line of credit, borrowers get access to credit from which they can pull what they need over a set period of time, referred to as draw period.

2. Personal loans

A personal loan traditionally offers a lump sum of funds at origination, with fixed monthly payments over the life of the loan. Learn more about personal loans vs. personal lines of credit.

3. Health Savings Account (HSA)

Health savings accounts are a popular option for many people looking to finance medical procedures and other medical costs. With an HSA, you can set aside money tax-free that you can put toward qualified medical expenses, depending on your account.

4. Flexible Savings Account (FSA)

Flexible savings accounts are similar to HSAs in that they allow you to set aside pre-tax dollars to help pay for qualifying medical expenses. Unlike HSAs, however, FSAs require you to use the funds in your account every year — otherwise, they are forfeited.

How can First Republic help you

When it comes to managing medical expenses, First Republic’s Personal Line of Credit can be a great financial solution. First Republic’s Personal Line of Credit provides access to revolving credit during a two-year draw period, followed by a repayment period for the remainder of the loan term.

With low fixed rates, it can be used for financing medical/dental expenses and much more. Also, there are no origination or prepayment fees.

To get an idea of what a First Republic Personal Line of Credit might look like for you, use this Personal Line of Credit Calculator.

First Republic’s Personal Line of Credit – access funds with fixed rates from 2.95% APR (with discounts)1.

1. Annual Percentage Rate. Rates effective as of 05/02/2022 and are subject to change.

If the Account is closed, the rate will increase by 5.00%. Rates shown include relationship-based pricing adjustments of: a) 2.00% for maintaining automatic payments and direct deposit with the Account, b) an additional 0.50% for depositing and maintaining a deposit balance of at least 10% of the approved loan amount into the Account, and c) an additional 0.25% for depositing and maintaining a deposit balance of at least 20% of the approved loan amount into the Account, with the option to deposit up to half of that 20% into an Eagle Invest account.

Banking products and services are provided by First Republic Bank, Member FDIC and Equal Housing Lender

Eagle Invest is an investment advisory service offered by First Republic Investment Management, Inc., and sub-advised by BlackRock FutureAdvisor, Inc. (FutureAdvisor). First Republic Investment Management, FutureAdvisor and Fidelity Investments, Member FINRA/SIPC, are unaffiliated SEC-registered investment advisors. FutureAdvisor is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. $5,000 minimum investment required.

Investment Advisory Services are offered through First Republic Investment Management, an SEC-Registered Investment Advisor and a wholly owned subsidiary of First Republic Bank.