When does a medical loan make sense?

New Zealand’s public health system can be a big help, particularly in acute situations. It doesn’t cover every situation as quickly as you might want, though, and sometimes people opt for private treatment instead – or as well. The private healthcare system comes at a cost, though, and when insurance does not cover the full amount, or when there is no cover in place, it can mean a significant bill. Sometimes, it may make sense to take a loan to cover these expenses. Here’s what you need to think about.

What is a medical loan?

A medical loan is a personal loan that is used to cover healthcare-related expenses. You might borrow to pay for dental treatment, for example, to cover the cost of medication that is not Pharmac-funded, or for a procedure that you would otherwise have to be on a waitlist for. Medical loans are generally unsecured, but this can vary depending on your circumstances and the lender’s approach.

What are medical loans used for?

Medical loans can be used for a wide range of things. Private hospitals in New Zealand complete about a quarter of a million procedures a year, and some of these are funded by the patients themselves.

In addition, some medical loans are used to pay for dental procedures, which are generally not publicly funded. Patients might also use medical loans for specialist treatment, elective surgery if they choose to go private rather than navigate the public system, and mental health services.

Why can medical costs lead to borrowing in NZ?

There are a few reasons that people might need or choose to borrow money to help with medical costs.

Accessing private healthcare

Within the private health system, you may have more control over where you access treatment and the timeframe in which you are treated. This comes at a cost, though, and if your health insurance won’t cover everything, or you don’t have coverage, you might need to find other ways to pay for it.

Avoiding wait times

Sometimes, when procedures aren’t urgent, people seeking treatment in the public system are put on a wait list. Paying to go private can be a way to avoid this.

Non-funded treatments 

Some procedures and medicines are not available in the public health system. In those cases, your only option may be to fund them yourselves.

 An urgent procedure 

If you need to have something done quickly, it may mean you need to find finance to help cover the costs. This is sometimes the case for things like dental procedures.

When does a medical loan make sense?

A medical loan won’t always be the right solution, but there are situations in which it’s worth considering.
If getting the treatment done will improve your quality of life, health or mobility, you might decide it’s worth funding yourself.

When you don’t have savings or an emergency fund to help cover the cost, you may need to turn to a medical loan instead. When repayments are affordable, and you have a stable income with manageable debt levels, it can be a solution that works with your budget. A medical loan may be cheaper than putting a procedure on a credit card, for example.

When may a medical loan not be the best option?

There are a few situations where you might want to think twice about whether a loan is the right option.

• Non-essential procedures: If you can put the treatment off until a later date, without impacting your health, it might make sense to save up for it rather than borrow money.
• You’re under financial pressure: If you’d struggle to take on additional debt or to make repayments, borrowing may not be the best option for you.
• You have high levels of existing debt: If you’re already carrying a lot of debt, it may be difficult to take out another loan.

People who are on a low income may be able to access assistance with things like dental procedures through Work and Income.

It could also be worth considering whether you take out medical insurance to reduce the likelihood of needing to borrow in future. Note, though, that this often won’t work if you’ve already been diagnosed with a condition that requires treatment.

How to get a medical loan in New Zealand?

Step 1: Assess your financial situation

To begin, it might help to run a stocktake of your current financial position. Review your level of income, your expenses and existing debts. From there, you can work out how much you feel you can realistically afford in loan repayments. Lenders are required not to lend you more than you can demonstrate you can afford, but it can be helpful to run your own calculation, too.

Step 2: Determine the loan amount you need

Next, you’ll need to work out what you want to borrow. You can get a confirmed quote from your healthcare provider to tell you how much the procedure will cost and the payment terms required. It is generally helpful to only borrow what you really need. If there are aspects of the treatment that could be delayed until you can save up for them, this could be something you consider.

Step 3: Check your credit score

It might help to get an idea of your credit score before you begin your application. You can do this with any of the major credit agencies in New Zealand: Centrix, Equifax and Illion. If there is anything on your record that is incorrect or needs updating, you could attend to this before you apply.

Step 4: Compare lenders and loan options

We can help you to look at the options for your medical loan. There are a number of lenders, but we’ll show you the interest rates and fees available from each. It may also be important to consider things like the flexibility on offer from various lenders and how they’ll work with your individual situation.

Step 5: Prepare required documents 

You’ll need to get your paperwork together for your application. Lenders generally want to see proof of identification, verification of your income – such as your payslips or bank statements showing income being paid – and details of your expenses. If you can get this information together before you apply, it may make the process smoother.

Step 6: Submit your application

We can help you submit your application to a suitable lender. The lender will run credit checks and check that you can afford the loan you’re applying for.

Step 7: Review the loan offer carefully

We can help you look through the loan offer you get from the lender to ensure you fully understand it.

As well as the interest rate you’re paying, you’ll want to look at things like the total cost of the loan, the repayment schedule you’re agreeing to and any fees that could be charged. Some lenders also charge a fee if borrowers want to repay a loan early, either partially or in full.

Step 8: Receive funds and manage repayments 

The money will be paid either directly to you or to your healthcare provider. You’ll then make a series of payments until you’ve cleared the debt.

What are the alternatives?

If you don’t think a medical loan is right for you, there are other options.

• The public system: Check what your options are within the public health system.
• Provider payment plans: Some healthcare providers may allow you to pay off the cost of your treatment over time.
• Health insurance: Health insurance can be a great option, but it needs to be taken out before you encounter a health problem that you would want to claim for. Pre-existing conditions may be more difficult to insure.
• Emergency savings: An emergency fund can be a great help when you need to pay for things like medical treatment. People are often advised to have an amount set aside that is equal to about three months’ worth of salary.
• Community or charitable help: Sometimes, people turn to fundraisers or charities to help with the cost of treatment. There is no guarantee of the outcome of these.

What is a medical loan likely to cost?

There are a few things that go into the cost of a medical loan.

Interest rates 

Lenders charge interest on the loans they issue. The rate that you are charged is generally related to how risky the lender thinks your loan might be. Secured loans tend to have lower interest rates for this reason.

The loan term 

The longer your loan term, the more interest you are likely to pay, because you’re carrying the debt for longer. Paying a loan off over a shorter term usually means higher repayments but a lower total cost overall.

A $5000 loan with a 12.95 percent interest rate, for example, might have weekly payments of $36 a week and a total cost of $7488 over 48 months. Over 24, it would cost $64 a week but only $6648 in total.

Fees and charges  

There may be annual fees, administration and early repayment fees to factor into the cost.

How do medical loans affect your financial future?

Taking a medical loan could have an effect on your financial future. It’s often the case that your credit score is impacted when the loan is first taken out. But if you pay off the loan on time, it can help your score improve over the long term.

Depending on the size of the loan, it may also affect your ability to take on other debt in the near term.

However, if the loan improves your quality of life and even improves your ability to work and earn, it may prove to be a very worthwhile investment.

How to decide if a medical loan is right for you?

Here are a few questions to ask yourself if you’re wondering whether a medical loan is the right choice.

• Is the treatment essential? This may be the most important factor in deciding whether a loan is the right option.
• Can I afford repayments comfortably? Never borrow more than you can comfortably afford to repay.
• Are there cheaper alternatives? Other options may be available, and it’s worth considering them.

Tips for managing a medical loan responsibly

Like any loan, it’s important to approach medical borrowing responsibly.

• Borrow only what you need: Work out how much you can afford to repay, and how much you need for the procedure. Stick to your budget to limit your borrowing as much as possible.
• Choose shorter loan terms where possible: Shorter loan terms mean higher repayments, but you’ll clear the loan more quickly, which will usually reduce your overall cost of borrowing. The term will depend on how the repayment fits in with your overall budget
• Avoid taking on additional debt: Focus on clearing your medical loan, not taking on other debt, if that is possible. Every individual situation is different.
• Make extra repayments if allowed: Depending on your lender’s approach, you may be able to make extra payments to pay off your loan and reduce your interest bill. However, you will also need to balance any additional fees that may be applied to any additional payments.
  
  

Frequently Asked Questions (FAQs)

Can I get a medical loan with bad credit in NZ?

You may be able to. We can help you look at the options available.

How quickly can a medical loan be approved?

Probably more quickly than you expect. We can often get an answer for applicants within a day or so.

Are medical loans different from personal loans?

Not really. A medical loan is a personal loan used to pay for a medical procedure.

Can I repay early without penalties?

It depends on your lender’s rules. We can help you to determine what fees might be associated with this.

Does health insurance reduce the need for a loan?

It may do. Health insurance can help with the cost of many medical procedures.

Got questions?

If you are considering a medical loan, you might have questions you’d like answered. The expert team at better finance™️ is here to help.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion, and seek independent guidance.