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Two ways to pay for healthcare costs without an emergency fund

What we'll cover

  • How a medical credit card works

  • How to apply for a medical loan

  • The two common types of medical loans

Even if you have an emergency savings fund —  you can avoid dipping into it for healthcare expenses, with a couple financing options. With medical credit cards and medical loans, you have several alternatives for covering out-of-pocket medical bills, both unexpected and pre-planned. But like any credit card or loan, it’s a good idea to understand the ins and outs before you apply.

Here’s what you need to know about medical credit cards and medical loans.

What is a medical credit card?

Much like the store card from your favorite retailer, medical credit cards are usually available at your healthcare professional’s office. You may have seen brochures or applications in the lobby of your dentist, eye doctor, plastic surgeon, or even veterinarian. In some cases, you can apply online and be approved for credit the same day — though the approved credit generally won't be available for use until you receive you card at a later date.

You can also apply for a medical credit card before your visit and then verify whether it's accepted by your healthcare provider.

Medical credit cards work pretty much like any other credit card. The same advantages (like readily available funds) and drawbacks (including taking on more debt) apply. In addition, your approval and terms will be based on your credit history and credit score , and the card issuer may or may not offer promotional financing terms. Be sure to check the terms and conditions of any credit card you apply for before you sign on the dotted line.

Verify that a medical credit card will cover your procedure.

Elective medical procedures are typically classified as planned, non-emergent procedures. They can be medically required, like some orthopedic surgeries, or optional, like fertility treatments. If you have an elective procedure you want to pay for using a medical credit card, it’s best to make sure it qualifies — which can include a range of services, such as various dental treatments, LASIK, cosmetic surgery, cataract removal surgery, and so on.

Look out for medical credit card interest terms.

Medical credit card promotions vary by card issuer. Typically they're labeled as “0% interest” or “deferred interest” (sometimes stated as "no interest if paid in full" within a specified number of months).

A credit card labeled as having a deferred interest promotional period has interest that's postponed for a certain time frame. However, interest is actually accruing from the moment you make the original purchase. If you don’t pay the balance in full before the deferred time period, you’re on the hook for all the interest that has compounded since the first charge.

A 0% interest credit card doesn’t charge you interest if you pay your balance in full by the end of the promotional period, which could be anywhere from six to 24 months. In this case, if you don’t pay the balance in full by the end of the promotional period, then interest will start accruing on the balance going forward — not from the date of the original purchase. You’ll be charged interest at whatever rate, or APR, is indicated in the terms of the credit card agreement.

Tip: It can be tempting to use your regular credit cards to pay for medical expenses, perhaps to earn rewards. But it's generally best to keep your medical expenses separate from day-to-day spending. That way, it’s easier to keep accurate records for tax purposes or your Health Savings Account requirements.

What is a medical loan?

Medical loans are another way you can finance upcoming procedures, cover high deductibles, or even consolidate existing medical debt . These types of loans are “unsecured” personal loans, meaning they aren’t supported by any collateral, like a car or property. You can apply for a medical loan through your provider, a bank, or lender.

Lenders use your creditworthiness to help determine the terms of any personal loan they offer, like a medical loan. To apply for a medical loan, you may first need to consult with your healthcare provider to inquire about the lenders they work with before completing the loan application process.

Medical loans usually offer fixed rates and a specified term, which means you know right off the bat what your monthly payments will be and how long it will take to pay off the balance. Just make it a priority to understand the terms of any loan you consider . And don’t forget to ask about down payment requirements or early repayment fees — neither being required with Ally Lending.

Not all loans are alike — even from the same lender.

Banks that offer loans for medical treatment usually work directly with your healthcare providers to make sure your bills are covered. If you're not obtaining a loan through your healthcare provider, be sure to check with your lender to see what expenses they cover, whether it’s elective procedures, emergencies (like a trip to the ER), care for chronic illnesses, etc.

Medical loans are typically one of two types: installment loans and interest promotions.

  • Installment loans: You receive a lump sum loan with a fixed interest rate and monthly payment, letting you make consistent, low monthly payments over an extended time period.

  • Interest promotions: Your loan may have low-to-no interest for an initial period (similar to the “deferred interest” or “0% interest” credit cards). You might choose this if you are willing to make higher payments over a shorter time period in order to pay only the original loan amount (principal loan balance).

The terms and conditions of any loan available to you will depend on your lender, your credit, and your healthcare provider’s options.

Medical expenses looming in the future? Save up ahead of time.

If you can, it’s usually best to plan ahead for upcoming expenses — especially discretionary ones. A savings account that earns interest at a competitive rate, like our Online Savings Account can help you save up for future medical expenses. Using our buckets feature , you can keep your medical savings separate from other savings, while still housed in the same account. You can even set up regular automatic transfers to your medical savings bucket to make hitting the magic number a little easier.

You have medical financing options.

When it comes to medical procedures, out-of-pocket costs don’t always have to come straight from your emergency savings account . With options to choose from, you can cover your medical expenses in a timely and responsible way that makes sense for you.

Tip: Some medical expenses can even be negotiated. So it may be worth it to express your budget with your healthcare provider prior to undergoing treatment to see if they'll be willing to reduce the cost.

Whether you opt for a medical credit card, medical loan, or have the chance to save up and pay with cash, remember no option is wrong and the best way to pay is the one that makes you most comfortable.

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