Use with caution: No-interest loans for medical bills

NEW YORK (9/5/07)--One of the fastest-growing segments of consumer credit stems from high medical bills not covered by insurance. To fill the gap, more doctors and dentists are offering no-interest loans. Before you jump at the option, understand the risks (The New York Times Aug. 30).

No-interest financing--available to the creditworthy--is a tool that allows you to string out your payments for a period of time--say, six, 12, or 18 months--without incurring interest. However, if you don't pay the loan in full by the stated term, interest accrues from the date of purchase.

No-interest loans now are helping many cash-strapped consumers who are stuck with high out-of-pocket medical expenses. However, unpaid loans can carry interest rates of 20% or more, similar to those on a credit card. In one online example, a plastic surgery clinic states: "Rates for our program range from 1.99% APR to 23.99% APR" to be determined by the term for which you apply and your credit standing.

If you apply for a no-interest medical loan, first get a handle on your budget. Agree only to terms you can afford. If you can't afford to stretch medical payments over 12 months, check out personal loan options at the credit union, or look for credit offers for zero-interest loans payable over several years--some of which ultimately may have interest rates of 12% or 13%. However, arrange these no-interest loans at the outset of your medical expense; don't expect to convert a 12-month, zero-interest plan to a multi-year program simply because you haven't paid in full within 12 months.

And in light of the subprime mortgage mess, expect your credit history to be scrutinized more closely if you apply for these or other loans.

For more information, read "Will Insurance Consumers Benefit from Modernization?" in Home & Family Finance Resource Center.

courtesy of cuna.org