How to Finance a Medical Emergency

An OppLoans E-Book

OppLoans - If you need to borrow

If you need to borrow money, borrow smart.

When faced with a medical emergency, some people can turn to family or friends to help out. Some cover unexpected expenses with a credit card. Others look to personal and installment loans to help them out. Unlike mortgages or auto loans, which are earmarked for specific types of purchases, personal loans can be used for almost anything that isn’t a business-related expense. If you’ve exhausted all other options and need to borrow money to cover a medical expense, it’s important that you borrow it from the right kind of lender.

Spotting a predatory lender.

If you’re working with the right lender under the right circumstances, a personal loan can be a lifesaver, but not all loans lead to a happy outcome. Whether you have a positive or negative experience depends largely on the kind of lender you’re working with. Some lenders are downright disastrous to borrow from — they’re called predatory lenders, and they are the financial equivalent of Scar from “The Lion King”: they’re sneaky, they’re dangerous, and they won’t think twice about throwing you headfirst into a wildebeest stampede.

Remember, a responsible lender wants you to succeed. Generally speaking, if a bank lends you money, they want you to pay them back on time. For that reason, they’re not going to lend you more than they think you can really afford.

A predatory lender is rooting for you to fail. In fact, their entire business model relies on borrowers paying late, or not paying at all. How? It’s all in the fees. A predatory lender might purposefully deceive you by pretending a loan is a better deal than it really is, or convince you to take out a bigger loan than they know you can afford. Once you fall behind on payments, they’ll encourage you to take out another loan to pay off the first, and charge you crazy-high fees for the privilege . This is what’s sometimes called a debt trap — a hard-to-escape pattern of borrowing more and more in order to cover past debts. This would be a good place for an example/personal experience. Someone who took out a $300 loan for Christmas presents and ended up owing $1,500 after all was said and done.

Spotting a predatory lender isn’t as easy as checking for a telltale facial scar. Even the Federal Deposit Insurance Corporation admits that “[t]here is no simple checklist for determining whether a particular loan or loan program is predatory.”  But that doesn’t mean there aren’t warning signs. 10

Here are a few ways to tell you might be dealing with a predatory lender:

  • They pressure you to make false statements. A responsible lender will never ask you to lie! If a lender ever encourages you to, say, claim that your income is bigger than it really is, walk away! Asking you to leave items blank or unsigned on your loan documents is also a big red flag. 11
  • They push you to quickly sign the loan documents – without reading them. Trustworthy lenders want you to understand the loan you’re receiving. Watch out for any lender that rushes you or discourages you from looking carefully at the terms of the loan. 12
  • They contact you via telephone, direct mail, or show up at your front door. These aren’t common practices for most responsible lenders. 13 Many predatory lenders also run aggressive TV advertisements. 14
  • They have bad customer reviews. Check out customer ratings on Google, Facebook and Yelp. You can also look at the Better Business Bureau’s (BBB) website to find consumer reviews and see if the lender is accredited. If a company has BBB accreditation, it’s a good sign. This means they meet certain standards, like quickly resolving customer complaints, or actually fulfilling the promises they make on their website. 15 Take caution when dealing with a lender without BBB accreditation.
  • They charge you a penalty for paying off your loan early. This is called a prepayment penalty, and it’s a tell-tale sign that your lender’s a little suspect. If you’re offered a loan with a prepayment penalty – especially if that penalty is above 3 percent – you may want to steer clear of it. 16
  • They offer you too much money. Generally speaking, you should try to minimize what’s called your debt-to-income ratio, which is the measure of how much you’re making compared with how much you owe. You can calculate your debt-to-income ratio by adding up your monthly debt payments and dividing that number by your monthly income. Studies show that people with a debt-to-income ratio of more than 43 percent often struggle to make their payments. Don’t trust lenders that encourage you to take out loans that will push your number over 43 percent. 17
  • There are high fees associated with the loan. For mortgages in particular, fees above 5 percent of the total loan amount are a sign you could be in for trouble. 18 Whether you’re looking for a mortgage or a personal loan, make sure you understand all of the fees you’re being charged. Don’t be afraid to ask questions — a responsible lender can and will answer them for you.
  • The loan’s interest rate starts low, but can soar sky-high. A predatory lender might try to lure you with a low interest rate without telling you that, under certain circumstances, that rate could explode. 19
  • They promise you can fix any problems with your current loan by refinancing. If a loan looks questionable to you now, don’t trust offers of a better deal in the future.

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