Financing a Face-Lift May Have Wrinkles

You're tired of wearing glasses and you look into Lasik surgery. Or maybe your dentist says you should get a couple of crowns on some fragile teeth. Maybe you're considering a cosmetic procedure. In any case, let's say your health insurance doesn't cover it.

Your health-care provider tells you that a special loan is available�at 0% interest, with no upfront costs, low monthly payments, no prepayment penalties, and no annual fees. It's a dream come true, right? Not necessarily.

More health-care providers today are notifying consumers of this type of financing, available through such organizations as CareCredit, a GE Money company that works with more than 100,000 providers. If you choose to participate, you'll submit an application to CareCredit or a similar organization. In the case of CareCredit, after approval, you'll receive a credit card usable only for health care.

Depending on the loan options your provider offers, you may be able to finance your procedure interest-free for a minimum of three months. If you pay off the entire amount during that "promotional period," making at least your required minimum monthly payments by each due date, the loan is indeed interest-free. That's a pretty good deal.

Costs can skyrocket

But will making the minimum monthly payments on your statement ensure that you pay off the entire purchase amount during the promotional period, say three months? No, according to CareCredit's Web site. It's up to you to ensure you pay enough each month so that you pay the balance in full during the promotional period. If your procedure costs $4,000, CareCredit's online calculator estimates you'd have to pay $1,333 a month.

And if you don't pay the entire balance during the promotional period? At the end of that time, CareCredit will bill you for finance charges�not only on the unpaid balance but also on the full original purchase amount, dating from the purchase date.

For a $4,000 procedure with a three-month promotional period, that's three months of finance charges on $4,000, added to your balance in one day. The finance charge is variable, currently with a minimum rate of 22.98%. You'll pay that rate going forward.

That's a very high rate. "Consumers should try to avoid any loan with an annual percentage rate (interest rate) above 10%," says Stephen Brobeck, executive director of the Consumer Federation of America, Washington, D.C. "Loans that charge 20% to 30% are extremely expensive."

And if you're late with a payment, you'll pay a late fee of $39.99 for balances of more than $250. Worse, your interest rate will jump to the "delinquency rate" of 29.99%. If you go over your credit limit, even if CareCredit authorizes the purchase, the fee is $39. That's enough to furrow even a Botox®-smooth brow.

Don't play if you can't pay

If you're absolutely certain you'll be able to pay off a CareCredit-type loan within the promotional period�without going over the limit or making late payments�this financing method might work for you. "If you know you'll have the money to pay the balance off in full, on time, it can make sense," agrees Kim McGrigg, community manager at Money Management International, a global nonprofit financial counseling organization headquartered in Houston.

But what if you lose your job, or your car breaks down, or any other unexpected expense arises? Could you still pay off your health-care loan without getting socked with finance charges and fees? If there's any doubt, this type of financing isn't a good idea. "Then it doesn't make sense, especially with an elective procedure," McGrigg says.

You may go into it with the best laid plans; many people do. "Research shows that most consumers who carry credit card balances thought when they acquired the cards that they'd pay them off in full each month," notes Brobeck. The same holds true for limited-term, interest-free loans. "It's best to be cautious," Brobeck says.

Cash is safest

"The most prudent way to finance elective surgery, if insurance doesn't cover it, is to save and pay cash," Brobeck advises.

Even if a procedure is medically necessary, do you need it immediately? Talk with your health-care provider about whether it could safely wait until you save the money.

That's the way to avoid even the possibility of loan pitfalls, McGrigg confirms. "After all, a transaction paid in full is always no interest."

Comparison shop for credit

If you need an immediate procedure, or you decide it's worth it to finance an elective one, don't take the first loan someone offers you. Shop around�costs can vary widely.

Credit unions are known for providing loans at lower interest rates with fewer fees than finance companies and banks, so check to see what your credit union offers. A fixed-rate, low-cost loan may serve you best. Along with reasonably priced loans, credit union staff also can recommend qualified financial counselors who can help you determine how a health-care loan would affect your overall budget.

"People often pick up a CareCredit application at their doctor's office and apply; they're taking what's presented without shopping for credit," says McGrigg. "Just because it's offered doesn't mean it's right for you."

If you decide a loan is right for you, read the loan disclosure carefully so you understand the terms and conditions. If you're not sure you understand them, ask your lender.

"That way, if there's a promotional period, you'll know what to expect when it ends," McGrigg says. "People are often taken by surprise when they're suddenly charged interest from the date of the purchase or, in this case, procedure."

Published April 12, 2010