Quick answer
Medical-expense personal loans cover immediate health costs but have limited direct tax benefits. You may deduct the underlying qualified medical expenses — not the loan interest — only when those expenses exceed the applicable AGI threshold and you itemize. (See IRS Publication 502.)

Key tax rules you must know

  • Deduction applies to medical expenses, not loan interest: The IRS allows a deduction for qualified medical and dental expenses that exceed 7.5% of AGI for most taxpayers; this applies to the medical costs themselves, not the interest on a personal loan used to pay them. Interest on an unsecured personal loan is generally personal interest and nondeductible. (IRS Pub. 502)
  • Year of payment matters: For tax purposes you deduct medical expenses in the year they were paid. If you borrow in Year 1 to pay medical bills but repay the loan in later years, the deduction is for the year the medical provider was paid, not the year you repay the loan.
  • Reimbursements reduce your deduction: Any amounts reimbursed by insurance, an HSA, an FSA, or a settlement reduce the deductible expense. Don’t double‑count.
  • Itemize to benefit: Only taxpayers who itemize can claim medical deductions. If your total itemized deductions (including medical) don’t exceed the standard deduction, there’s no tax benefit.

Common pitfalls borrowers make

  • Assuming loan interest is deductible: Many borrowers think interest on a ‘‘medical loan’’ is deductible; it usually isn’t. The deductible item is the qualified medical expense, not financing costs.
  • Poor recordkeeping: Missing receipts, statements, or proof of payment makes it hard to substantiate deductions in an IRS audit. Keep invoices, explanation of benefits (EOBs), bank records, and lender statements.
  • Mis-timing deductions: Paying a provider by credit or loan in December versus January could shift a deduction between tax years. Plan year of payment if possible.
  • Overlooking alternatives: A high-rate personal loan may cost more than negotiated hospital plans, hardship programs, or HSA/FSA use. Compare total costs before borrowing.

Practical example (simple)

  • Medical bill paid to provider: $10,000
  • Adjusted gross income (AGI): $60,000 (7.5% of AGI = $4,500)
  • Deductible medical expense = $10,000 − $4,500 = $5,500 (if you itemize and have no other offsets)
  • Interest on a $10,000 personal loan would increase total out-of-pocket cost but is not added to the deductible amount.

How to protect your taxes (step-by-step)

  1. Document the expense and payment: save invoices, EOBs, and proof the provider received payment (not just when you repaid the lender).
  2. Track reimbursements: if an insurer or HSA reimburses you later, adjust that tax year’s deduction.
  3. Time payments when practical: if you expect to itemize in one year but not the next, discuss payment timing with the provider.
  4. Consult a tax professional: rules can change and interactions with HSAs/FSAs or other credits can be complex.

Alternatives and financial considerations

  • Negotiate with the provider or ask for a hardship plan—many hospitals offer reduced bills or zero-interest payment plans.
  • Compare borrowing costs: medical credit cards, 0% promo cards, HELOCs, and personal loans all have different fees, rates, and tax treatment.
  • Use HSA/FSA funds when available: HSA distributions for qualified medical expenses are tax-free and avoid financing costs.

Where to learn more

Internal resources on FinHelp

Professional note and disclaimer
In my practice helping clients weigh medical financing options, I often see missed savings from poor documentation and from assuming loan interest is deductible. This entry is educational and not individualized tax advice. Consult a qualified tax advisor or CPA for guidance tailored to your situation.