Funding medical emergencies: Use credit cards and loans wisely, build fund

Handling the financial aspect of a medical emergency is often a daunting task, since it requires coming up with a significant sum at short notice. Households must prepare  in advance to meet this challenge.

 

Key issues 

In India, out-of-pocket medical expenses are high. Many patients don’t have a medical cover, while others have an inadequate amount. Even those with adequate covers may face issues like non-availability of network hospitals nearby, forcing them to pay out of pocket and seek reimbursement later.

 

“According to the Insurance Regulatory and Development Authority of India’s (Irdai) last released annual report, reimbursement claims amounted to around Rs 28,000 crore out of total registered health insurance claims of Rs 70,000 crore,” says Saurabh Soni, founder and chief executive officer (CEO), DigiSparsh.

 

 

Personal loans: Quick, but expensive

Personal loans offer a quick funding solution. “Most financial institutions process personal loans even for new-to-bank customers within a few hours. Pre-approved loans or those tied to salary accounts can be approved in minutes,” says Adhil Shetty, chief executive officer (CEO), Bankbazaar.

 

However, personal loans are unsecured and attract high interest rates, ranging from 9.9 to 20.6 per cent. Approval outside working hours can be difficult if you don’t have an existing banking relationship.

 

Credit cards: Convenience at high cost 

Credit cards provide immediate funds, which are useful for deposits required at the time of admission. Interest-free credit is available for 30–50 days. However, timely repayment is crucial. “After the interest-free period, rates can go as high as 2.5–4 per cent per month,” says Shetty. There is a risk of falling into a debt trap if you don’t have a repayment plan in place.

 

Shetty advises limiting credit card use to initial payments and exploring alternative avenues (like gold loans) for the remaining medical bills. If a customer needs time after the interest-free period, then converting the balance into equated monthly instalments (EMIs) can lower the interest cost to around 12.5-15 per cent.

 

Fintechs: Zero interest, read fine print 

Fintech companies now offer medical loans under a subvention model where hospitals cover the interest. “This allows our platform to facilitate loans to customers at zero per cent interest,” says Sahil Lakshmanan, chief business officer, CarePal Money.

 

This model is similar to zero per cent loans offered with consumer durables like mobile phones, where manufacturers subsidise the interest cost.

 

Fintechs often process loans faster and with simpler terms than traditional lenders. “We offer loans from Rs 8,000 to Rs 15 lakh, including for procedures like IVF not typically covered by insurance,” says Soumya Arora, senior vice-president, LoanTap Financial Technologies.

 

Lakshmanan says they offer loans for critical illnesses, which many other lenders don’t.

 

Shetty advises limiting credit card use to initial payments and exploring alternative avenues (like gold loans) for the remaining medical bills. If a customer needs time after the interest-free period, then converting the balance into equated monthly instalments (EMIs) can usually lower the interest cost (rates range from 11.9-22 per cent).

 

However, such loans are limited to hospitals that have partnerships with these lenders.

 

Points to pay attention 

To avoid last-minute funding stress, build a medical emergency corpus. “Keep around Rs 10 lakh for such situations, especially if you have elderly family members. Split the amount between a savings account and liquid funds,” says Abhishek Kumar, Sebi registered investment advisor (RIA) and founder, SahajMoney.

 

When considering fintech loans, review terms carefully. “Some fintech lenders may require upfront EMIs. For instance, in a 12-EMI loan, four may need to be paid upfront,” says Kumar.

 

Examine medical bills closely. “To compensate for the interest cost that the hospital pays, it may inflate rates or curtail discounts,” says Kumar. 

Lastly, avoid borrowing from unorganised lenders, who may charge exorbitant rates of up to 50 per cent annually.

 

Gold loans: Handy option for post-admission bills

  Pros

• Usually lower interest rates (8.8 per cent and above) compared to unsecured loans like personal loans or credit cards
• Flexible repayment options, including bullet payments, interest-only payments, or traditional EMIs
• Suitable for clearing larger hospital bills at the time of discharge due to lower interest rates

  Cons

• Risk of losing the pledged gold if you are unable to repay the loan
• Lenders take some time to evaluate the purity of the pledged gold 
• Besides processing fee, there may be costs like gold assaying and certification charges
• Pledged gold is at risk if loan is not taken from a regulated entity