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What are medical loans?

There may come a time in life when you're hit with unexpected hospital bills or other medical costs that you don't have the funds to pay for upfront. In this instance, a medical personal loan could be a possible solution to ensure your health remains a priority.

A medical loan is a type of personal loan that can help fund medical procedures and related expenses, including equipment and medication. Once a borrower is approved for a personal loan, they can use the loan amount to pay for the medical related costs, and then repay it, plus interest, in instalments over a predetermined period of time.

Taking out a personal loan to cover your medical bills could help you receive the treatment you need, when you need it.

What can you use a medical loan for?

In Australia, Medicare and private health insurance may help with the cost of some of your healthcare expenses, but it's unlikely you'll be covered for all your medical needs.

Dental treatment, for example, is an often expensive healthcare cost that Medicare typically won't cover. Even if you have private health insurance, dental work is generally an optional extra that you might not have. 

So, if you have a costly dental emergency or need some longer-term root canal work, you may be significantly out of pocket. This is where a medical loan can help take the financial pressure off, so you can receive the treatment you need without delay and pay back the costs over time.

Some other types of medical procedures that you may be able to use a personal loan for include:

Do you have to tell the lender what you're using a medical loan for?

Generally speaking, lenders expect borrowers to disclose the loan purpose when submitting a personal loan application.

The reason being is that lenders are responsible for assessing how much you want to borrow, why you want to borrow that amount – i.e. your loan purpose – and how it will affect your financial situation.

Lenders require you to disclose your loan purpose to provide them with the information they need to make a comprehensive assessment of whether the loan can be deemed suitable for you, and thus meet the obligations of responsible lending.

That said, it's unlikely you'll be required to disclose all of the nitty-gritty details of your medical expenses. Consider checking the product's lending criteria, or reaching out to the lender directly for information specific to your personal circumstances.

What features should you consider when choosing a medical personal loan?

There are many different features to consider when choosing a personal loan, and what might be suitable for one borrower may not be suitable for the next. So, it pays to do your research.

If you’re shopping around for a personal loan to cover your medical costs, consider the following features before you make a decision:

Secured vs unsecured

A secured personal loan is a loan that’s secured by an asset, such a car, which is used as collateral for the money borrowed. Car loans are the most common type of secured loans as the car itself can be used as security on the loan. Medical loans, however, are more likely to be unsecured. Although, it is still possible to get a secured medical loan if you have an asset to put up as collateral, such as your house. 

Unsecured personal loans tend to have higher interest rates than secured personal loans, as they pose a higher risk to the lender. But while secured loans might offer you a lower interest rate, you are at risk of losing your asset if you fail to repay the loan.

Interest rate

The lender may offer you a higher or lower interest rate depending on how much you want to borrow and the strength of your credit history. For example, borrowers with good credit ratings will generally be offered more competitive interest rates than borrowers with bad credit scores. You may also want to compare whether a fixed or variable interest rate would better suit your needs.

Comparison rate

Comparing personal loan rates is an important part of the comparison process, but remember that the lowest interest rate doesn’t always amount to the cheapest product. That’s because interest rates don’t factor in fees, which can really add to the total cost of the loan. This is where the comparison rate may come in handy, as it includes both the interest rate and the main fees payable, which can give you a better idea of the loan’s total cost. If two personal loan options have the same interest rate, but different comparison rates, it may mean that the loan with the higher comparison rate charges higher fees.

Extra features

Some personal loans may offer extra features that could be important to you and how you pay off your loan. Some of these include:

  • Extra repayments: Making additional repayments on top of your regular repayments is one way to pay off your personal loan sooner. However, not all lenders will allow you to do so, some may charge a fee, and others may have a limit.
  • A redraw facility: A personal loan with a redraw facility allows you to withdraw any extra repayments you’ve made and return them to your bank account. This may be helpful if you want to pay less interest on your personal loan, but still want access to your money. Keep in mind that you may be charged a fee for using this feature.

Fees

It's important to remember that the cost of the loan is not limited to the amount of interest charged. Interest may be a lender’s main form of revenue, but the fees they charge could also be hefty. Look out for upfront fees, ongoing fees, and other non-standard fees. Some of the fees you may be charged include:

  • Application fees
  • Establishment fees
  • Monthly fees
  • Extra repayment fees
  • Early repayment fees
  • Redraw fees
  • Exit fees

How much will you pay with a medical personal loan?

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Pros and cons of medical loans

As with all credit products, it's important to weigh up the potential benefits and disadvantages before making your decision. Here are some worth considering:

  • Access to money when it’s needed most
  • Structured repayment schedule to help keep you on track
  • Typically lower interest rates than other credit products, such as credit cards
  • You will be charged interest on the amount borrowed
  • It may take a number of years to pay off
  • You are required to borrow a lump sum and it may be difficult to predict associated costs

What are the alternatives to medical personal loans?

Before you jump into your personal loan comparison, it may be helpful to know what other options there are - just in case there's an alternative that's more suitable for you. Here are some other finance options that might be worth considering:

  • Credit card:A credit card could give you more flexibility if other costs pop up during or after a medical procedure. But keep in mind, credit cards generally have higher interest rates than personal loans, and don't have a structured repayment schedule.
  • Buy now, pay later (BNPL): BNPL services are apps or online platforms that allow you to pay for something today that you then pay back in smaller, even segments. You may not be charged interest for using a BNPL service, but you could be charged fees.
  • No Interest Loan Scheme (NILS): NILS is a no interest small loan offered to eligible low income earners that can be used to borrow up to $1500. While there are no credit checks, NILS loans can only be used to pay for essential goods and services, including medical expenses. To qualify, you must meet the eligibility criteria.
  • Payment plan: In certain circumstances, you may be able to access a payment plan option offered by the medical practice at which your procedure is taking place. Reach out to the practice directly to find out.

If you are not an Australian citizen or permanent resident, you may find it more difficult to meet the eligibility criteria for a standard personal loan. In this instance, one of these alternative finance options might be better suited to your situation.

How long do you have to pay off a medical personal loan?

Your loan repayments will be spread across the agreed loan term, which is the amount of time you have to pay off your medical loan.

Many personal loans come with loan terms of between two and five years in length, while plenty of lenders offer loan terms as short as one year and as long as seven - and sometimes even more.

The length of time you take to pay off your loan will depend on what the lender offers and what works with your budget.

Keep in mind that the length of your loan term will largely determine how much you pay in interest charges. Generally speaking, the longer the loan term, the more affordable your repayments may be, but the more interest you'll likely pay in total. Whereas the shorter your loan term, the more expensive your repayments may be, but the less interest you'll be charged.

How can you compare medical personal loans on RateCity?

RateCity's personal loan comparison tools can take some of the hassle out of shopping for a medical loan. To get started, consider utilising the following:

Personal loan comparison table

A personal loan comparison table, like the one on this page, can be a helpful tool when narrowing down your medical loan options. You can search by loan amount and loan term and use the filters to find products that may be more suited to your needs.

Personal loan calculator

RateCity’s personal loan calculator can give you an estimate of how much your medical personal loan repayments may cost based on the amount you’d like to borrow, your preferred loan term and interest rate. The repayment calculator can also provide you with an estimate of the total interest payable and total amount payable over the life of the loan, based on weekly, fortnightly or monthly repayments.

Real Time Ratings™

Real Time Ratings™ is a system that ranks personal loans based on your own individual requirements. It gives each personal loan a score out of five stars, based on loan costs and flexibility, in real time as you use the site.

For information specific to your personal financial situation, consider reaching out to a personal loan broker or financial adviser before you begin the online application process.

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What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

How are personal loans regulated?

Personal lenders in Australia are regulated by ASIC (the Australian Securities & Investments Commission) and must follow responsible lending rules. That means they can’t lend money without making “reasonable inquiries” about a borrower’s financial situation and ensuring the loan is “not unsuitable” for them.

Can I get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

Where can I get a personal loan?

The Australian personal loans market contains dozens of lenders offering several hundred different products. Personal loans are available through a range of institutions, including:

There are three main ways to access personal loans. You can go through a comparison website, such as RateCity. You can use a finance broker. Or you can directly contact the lender.

What are the pros and cons of personal loans?

The advantages of personal loans are that they’re easier to obtain than mortgages and usually have lower interest rates than credit cards.

One disadvantage with personal loans is that you have to go through a formal application process, unlike when you borrow money on your credit card. Another disadvantage is that you’ll be charged a higher interest rate than if you borrowed the money as part of a mortgage.

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.