Medical credit cards are credit cards issued for the purpose of paying medical expenses not covered by insurance. They are different from traditional credit cards in that they can usually only be used for qualifying health or veterinary care expenses, and only with certain providers.
They are very often deferred-interest credit cards. Many doctors’, dentists’ and veterinarians’ offices prominently display applications on the reception desk or countertop. Patients can apply on the spot and get a decision in moments. Credit requirements are generous and approval rates are high.
A deferred-interest credit card generally offers a 0% or very low interest rate for a period of time, after which the account converts to a regular interest rate. Unlike a traditional introductory rate offer, on a deferred-interest card if the entire balance is not paid within the promotional timeframe, the cardholder is charged interest on the entire balance, including any portion that was paid off, back to the date of purchase.
As a result, the balance owed can rise by triple digits or more overnight when the grace period ends. Violations of the terms, like a late or missed payment or a payment that is less than the minimum, can cause the interest-free offer to be rescinded retroactively. Furthermore, medical credit cards tend to come with very high interest rates (27% to 30%).
The Consumer Finance Protection Bureau (CFPB) is on the hunt for predatory medical credit cards. In 2013, CareCredit was ordered to refund $34 million to patients who were “deceptively enrolled” into medical credit card accounts – the CFPB ruled that too many customers thought the card was interest-free when it was not.
(The majority of medical credit cards on the market today are issued by CareCredit LLC, and most of their providers are dentists.) CareCredit was also ordered to enhance consumer disclosures and improve its customer service, and the company fully complied. CareCredit also now offers a secondary, longer-term financing product at a lower (14.9%), fixed interest rate. Caveats notwithstanding, medical credit cards provide the same benefits as other promotional credit cards – the opportunity to purchase a high cost item and pay it off over time at little to no cost.
Consumers who understand the terms and pay off balances accordingly are vocal advocates of medical credit cards. The two main drawbacks, however, are that not all consumers understand the terms, and they may be unable to stick to a payoff plan and avoid falling into long-term revolving debt.
Alternatives To Medical Credit Cards
Alternatives exist. The doctor or dentist may have a financial incentive (like getting paid in full within days of the procedure even while you take months or years to pay off your balance) for recommending a particular financing program, but it might not be the best deal for you.
Traditional loans and credit cards might offer better terms. American Healthcare Lending offers unsecured installment loans of up to $100,000 for qualifying health care expenses with repayment periods of 24 to 84 months. Rates vary, depending on creditworthiness and the type of provider and service needed, from 5.9% to about 36%. The longer the term, the higher the rate.
East Bridge Funding offers installment loans for health care expenses at about 14.9%, and also offers interest-free financing for up to 18 months. Wells Fargo offers a medical credit card that comes with a 9.99% interest rate. Consumers with a pressing health care need and no way to pay should approach their financing strategy carefully. Before you pay for something you might not be able to afford, read up on how medical collection accounts can affect your credit score, and the updates that will be taking place as a result of the new FICO® 9 scoring model.
Tips For Paying For Your Healthcare
If you have limited financial resources, you might be able to get free or low cost services. For any service you can’t get for free, ask the provider for a discount.
Find Another Way To Pay
Ask about setting up a payment plan directly with the provider. Many hospitals and other providers will not only write down the cost of the service, they may also offer an interest-free period in which to pay off the charges. Consider other loan sources, too, from a healthcare lender or your bank. If there’s any chance you can’t pay off the balance during the promotional period, a reasonable interest rate might save you money over the high deferred rate.
Examine The Terms
If the medical credit card looks like your only option for getting health care services that cannot be postponed, examine the terms closely. The terms should be in writing and provided to you before you agree to open the account. If they’re confusing, absent or vague, don’t sign up. Look for the Schumer box, the summary of card costs, and be sure you understand all the rates and fees associated with the account.
Pay Off The Balance In A Timely Manner
Before using the card, have a plan in place to pay off the entire balance before the promotional period expires. Know that the minimum payment is probably not enough to achieve payoff by the deadline. Once you have a balance on the card, understand the terms for any new purchases you make (for example, whether an existing balance negates the interest-free grace period for new charges).
Review these tips from the CFPB about health care credit cards.