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How to Decide if You Need an Interest-Free Loan for Medical Bills

nterest-Free Medical Loans

Interest-Free Medical Loans: Are They Your Best Option?

If you’re looking for a loan to cover the expense of an urgent medical procedure and you see a creditor offering “financing at zero interest for a year,” you’re likely to want to learn more. On the surface, interest-free loans may seem like an excellent deal. After all, they can give you an opportunity to receive treatment quickly, and repay the loan at your convenience without paying any interest on the principal.

But are interest-free loans for medical bills really a good idea? Or is there more to zero-interest loans than meets the eye?

In this article, we explain what interest-free medical loans are and highlight some of the common pros and cons so you can decide if they’re the best option for you.

How Interest-free Medical Loans Work

How interest-free medical loans work is simple. The creditor assumes all the risk by providing applicants with upfront access to the funds they need to pay for their medical treatment. This arrangement works well for both the hospital and the patient, because the patient receives the treatment they need and provides care without worrying about debt collection. The patient also gets to divide a large bill into smaller monthly payments, making the cost of medical treatment more affordable.

Interest-free medical loans can become complicated if you don’t pay back the loan within the allotted time frame. The loan provider typically offers a promotional period during which the loan must be repaid in full; this could be 6, 12, 18, or 24 months (depending on pre-agreed terms). If you complete repayment within that time frame, you only pay back the principal. However, if full payment is not completed before the promotional period elapses, you’ll have to pay the principal plus interest accrued in retrospect.

For example, let’s say you take out a loan of $1,200 (at a 26.99% annual percentage rate, or APR) with a six-month promotional period to cover the procedure’s cost. From the time you accepted the loan, interest (at 26.99%) is being accumulated on the principal. If you pay off the $1,200 within the first six months, you’ll be in the clear and won’t be on the hook for the accrued interest.

If, however, by the seventh month, you fail to pay off the entire $1,200, your balance becomes the remainder of that $1,200 (whatever you haven’t paid off) in addition to that interest rate that has been compounding the entire time.

Until the loan is fully repaid (the remaining $1,200 plus the accumulated interest), an interest of 26.99% will be charged annually.

Let’s explore this further by looking at the pros and cons of interest-free loans.

The Pros of Interest-free Loans

Some benefits to interest-free loans for medical bills include:

  • Fast cash—If you’re in the middle of a medical crisis and need treatment quickly, but lack the funds, securing an interest-free loan can help. You can get the help you need and worry about paying for it later.
  • Variety of loan options—You have a lot of options, making it easy to find the loan terms that work best for you and the specifics of your situation.
  • Flexibility—Your medical bills may extend beyond what the hospital charges you. You may need to cover related expenses, such as gas, hotels, food, and anything else that happened as a result of your injury or illness. An interest-free medical loan can help with this as well.

The Cons of Interest-free loans

Here are some reasons why applying for an interest-free medical loan may not be a good idea:

  • High APRs—Interest-free loans charge higher APRs than regular credit cards or loans. Many applicants see only the promise of zero-interest financing and fail to read the fine-print about the interest rates and are later caught by surprise.
  • Sudden cancellations—Some medical loan providers will cancel your promotional period immediately if you are late on just one payment.
  • Easy to overlook the fine print—Creditors will often give loan recipients an option to pay a minimum monthly payment. While that might sound straightforward, if you look closely at the terms of your loan, you may notice that if you only pay the minimum due, you won’t be able to pay off the loan in its entirety by the end of the grace period.

For example, if you sign up for a loan of $1,200 with a promotional period of six months, your minimum monthly payment will be set at approximately $36 per month. If you adhere to this payment schedule, you will have a balance of $984 left unpaid after the sixth month.

By the 7th month, retrospective interest from the past six months will be calculated and added to the principal. So, despite having paid $216, you’ll have an unpaid balance of $1,136. If you stick to the minimum monthly payment schedule until the balance is paid off, you end up paying $2,693, and it will take 96 months to do so.

All things being equal, you should be able to pay off $1,200 within six months. But if you have an unexpected financial challenge during the loan term and you miss a payment, your lender may cancel your promotional period. And if you misunderstand your loan terms and only make minimum monthly payments, you’ll end up paying over $1,400 in interest over an eight-year period.

How Interest-free Medical Loans Compare with 0% APR Introductory Period

When people see a medical loan provider offering zero interest for a promotional period, they often mistake it for a similar offer credit card companies often provide.

An important distinction exists, however. With credit cards, when the introductory period ends, cardholders only have to pay interest on their unpaid balance. For example, if you buy an item worth $1,500 using a new credit card with a 12-month introductory period at 0% APR, you make interest-free payments on the principal during the first 12 months.

After the introductory period, interest is charged only on the balance that is left unpaid.

With interest-free loans for medical bills, when the introductory period ends, loan holders must pay in full or pay for the interest accrued throughout the entire period. This is regardless of how much of the initial loan balance they’ve already paid off.

After the introductory period, interest is charged on the entire balance, not just the balance that is left unpaid.

3 Customer-friendly Alternatives to Interest-free Medical Loans

In place of a zero-interest medical loan, here are a couple of other options that offer better terms and better value to customers.

Credit Cards

To cover the cost of your medical treatment, you can apply for a credit card with fixed monthly payments to ensure you pay off your debt within the stipulated term. You may even receive a 0% APR introductory period that stipulates that if you miss a payment, you only incur a small fee as a penalty. You’ll need a good credit score (680 and above) to get a card that offers these benefits.

Personal Loans

Banks, credit unions, and online lenders offer personal loans for medical procedures. They also require good credit; the higher your score, the better the loan terms.

United Credit

If you have a credit score that is less than perfect, try a medical loan through United Credit’s lending partner network. We can connect you with financing for a wide range of medical procedures, and our rates compete favorably with the best in the market.

Applicants may qualify for up to $25,000 in funding, with monthly payments that are affordable and well-structured. While a deferred-interest medical loan may sound like a great idea, the more you learn about their terms, the more you may realize that the cons outweigh the pros. United Credit is here to help you weed out the quality loans from the bad ones. Start an application for a personal loan through United Credit’s lending partner network today.

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Matthew Libman

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Matthew is the President and Founder of United Credit. Matt founded fintech company United Medical Credit in 2011 to connect consumers and businesses with an array of experienced, innovative financing solutions. In 2022, the company grew and became United Credit, fueling an expansion into retail markets while retaining its expertise in specialty healthcare.

Since its founding, Matt has provided leadership for all aspects of the Company, emphasizing long-term growth while ensuring United Credit delivers value to its consumers, merchants, and business partners. The Company has risen in the fintech space as a preferred consumer financing partner under his tenure.

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