Dental Financing Plans.

Dentists will often offer some type of financing plan to their patients that allows them to budget the expense of their dental treatment over time.

They do this because they know that the cost of dentistry is often a barrier that prevents patients from scheduling the treatment that they need, or want. By offering credit, a dentist can help to keep their appointment book full of patients.

Financing plans can be in-house or third-party.

The specific type of plan that a dentist chooses to offer will of course vary. Some will be in-house programs, meaning that the agreement is entirely arranged for and serviced by the individual dentist or dental office.

More likely, the patient's credit will be obtained from a third-party source. There's no shortage of commercial lenders that are eager to participate in the dental-loan business.

Financing agreements - What to look for. / What to watch out for.

What are the usual selling points of a plan?

Here's a list of features that you'll likely find bundled into any commercial dental financing program.

Do these terms look familiar? Maybe they seem similar to the credit plan that you've been offered by the furniture store down the street or big-box home-supply store. They're probably pretty much the same.

To a financing company, dental credit is simply unsecured personal debt.

Dental financing is a type of unsecured personal debit. You put up nothing as collateral. And your dental work can't be repossessed. For this reason, extending this type of credit is one of the riskiest types of consumer lending that there is.

To insure that they'll make a profit, a company will need to structure the terms of the agreement in a fashion that is as favorable for them as possible. A part of this structuring will involve the program's interest rate (which can be high or, surprisingly enough, in some cases zero). And it will also certainly involve strict repayment conditions and substantial penalties if these terms are not met.

Be sure to evaluate and compare the interest rate that's being offered.

Since dental financing is a type of unsecured debt, you can expect that the interest rate involved will be comparatively high. It will most likely run along the same line as that of your credit card. You may very well find that your own credit card offers a lower interest rate.

Now, having said that, the terms of some dental financing plans are zero. (Read our next paragraph.)

Does the term "no interest" really mean zero interest?

Many dental credit plans have a no-interest option. For example, the terms of the agreement may be such that (for amounts more that a certain minimum but less that a specified maximum) no interest is charged for the first one, maybe even two, years.

This can be a great deal for some patients, if they are capable of strictly adhering to the terms of the agreement. (Choosing this option may have consequences for your dentist - read below.) But what happens if you don't make a payment on time, or if your balance isn't paid off in full before the end of the interest-free period? You better check.

Failing to comply with the terms of the agreement may not only disallow your eligibility for the zero-interest feature but may also place you in a situation where significant penalties are applied. We've seen estimates that suggest that as many as twenty percent of people participating in no-interest financing agreements (of all sorts) fail to meet the plan's terms.

Why not shop around for other ways to finance your dental treatment?

With dental credit offered through your dentist, a part of what you're paying for is the convenience of doing your financing right there in their office. We'd suggest to you, however, that you owe it to yourself to shop around, at least a little bit. Your own bank, credit union or savings and loan may very well be able to arrange for a loan whose interest rate and terms are more favorable for you.

Ask your dentist to make you a deal.

If a dentist has chosen to offer financing, they are probably open to other types of deals too.

We haven't mentioned this yet but when you participate in a third-party dental credit program offered through your dentist's office, they (the dentist) typically end up paying a fee (read below). It can be on the order of five to almost fifteen percent of the total amount that you finance.

Now, take a moment to think about what this implies. By offering a third-party credit plan, you already know that your dentist is willing to discount the cost of their services. So why not consider making them a better offer?

Arrange for dental financing on your own (at your credit union, bank, etc...) and offer to pay this lump sum to your dentist, in advance, in return for a cash discount. You pay less in financing charges, you get the cash discount and the dentist makes more money. Win, win and win.

Dental financing plans - The dentist's part of the deal.

To us, a very interesting part of this topic was learning about how the dentist fares in a third-party credit arrangement. It's not quite as straightforward as you might think.

Did you know that the dentist usually incurs an expense?

You might think that by being both the treatment provider and the middle-man for a financing transaction (the party that hooked the patient up with the finance company) that the dentist would not only get the full amount of their patient's treatment costs paid to them up front but might also get some type of commission on top of that.

This is not the way things usually play out. Actually, when participating with a third-party plan, the dentist usually incurs an expense. And this will usually be on the order of at least five percent of the total amount financed by the patient and possibly even closer to fifteen.

This cost is substantially greater than the two to three percent "merchant fee" that a dentist would be charged by a credit card company. (And this is why a dentist might be inclined to offer a discount to those patients who pay for their treatment in full in advance, either cash or possibly even when using a credit card.)

Why would a dentist be interested in paying a fee so you can finance your dental work?

The reason why dentists choose to participate with third-party dental financing companies is because of their bottom line. The dentist is simply doing that which they feel they must do to keep their dental chairs filled with patients.

We've seen promotional information on the websites of companies specializing in this field that suggests that by reducing the expense barrier associated with a patient's treatment (meaning patients having financing available to them) a dentist can increase their income on the order of twenty five percent.

The financing has the affect of placing the dentist in greater demand because it helps their patients afford the treatment they need. It also helps patients to obtain those dental services that they don't have to have but want (such as high-dollar cosmetic dental procedures that are not covered by dental insurance).

There are other advantages for the dentist too. They get all of their portion of the treatment money up front, usually just a few days after the financing has been put in place. Determining the patient's credit worthiness (eligibility to participate in the plan) is turnkey and instant. And if the patient doesn't follow through and pay as promised, it's not the dentist's problem.

The fee that the dentist pays varies.

We found it interesting that under different scenarios, the dentist's cost of allowing their patient's to finance their dental treatment varied.

» Scenario #1: The patient chooses a plan's interest-free feature.

Some dental plans offer a no-interest option. The amount financed, or the credit line offered, typically needs to fall with in a certain dollar range (both a minimum and maximum limitation). The time frame associated with a no-interest feature is typically two years or less.

While a no-interest option can be a great choice for those able to take advantage of this type of plan's strict terms, it is the most costly scenario for the dentist. (Which means that a dental staff member's concern that the strict terms of the agreement may be too demanding for a patient and therefore a longer-term plan might be the better choice, may not be a genuine as it first seems.)

The fact that the fees are higher for the dentist only makes sense. If the patient isn't paying interest, somebody has to pay the financing company. In the case of a no-interest arrangement, the fees that are deducted from the lump sum payment to the dentist can be between ten and fifteen percent of the total amount financed. Ouch.

» Scenario #2: The patient extends their financing over a longer time period, with interest.

Some patient's may feel that they will not be able to meet the strict payment conditions associated with a no-interest option. They instead require a longer repayment period and lower payments. The tradeoff is simply that the loaned amount will incur interest charges during the entire duration of the agreement.

This interest-bearing scenario provides the more profitable situation for the dentist. Since the patient is paying interest, the dentist's fees imposed by the dental financing company are lowered. With this case, they usually run on the order of five percent of the total amount that the patient finances (which is about twice the amount they would pay to a credit card company if you charged your bill on your card).

Make sure your dental financing plan is a good deal for you, not just your dentist.

Some patient's decision to enter into a loan agreement may be swayed by the fact that it is being offered to them by their trusted dentist. With the exception of some type of payment plan that is offered to you directly from your dentist at little or no interest, you need to keep in mind that any type of agreement that you are offered is a business deal, not just a simple act of good will.

The dentist has decided that the agreement offers advantages for them and that is why it is being offered to you. It may offer advantages for you too, but keep in mind that it is a straightforward business deal and its terms need to be scrutinized as such.

Be leery of the sincerity of program endorsements.

We would also state that we have seen the promotional materials of dental financing companies that claim a relationship (sometimes an endorsement) with various professional associations (including the Academy of General Dentistry, the American Academy of Periodontology, the American Association of Oral & Maxillofacial Surgeons and the American Dental Association).

Don't be unduly influenced by this advertising. We would anticipate these relationships are much more motivated by the financial concerns of the organization and its dentist members as opposed to the financial well being of dental patients.