What they are and where to get one – Forbes Advisor
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If you’ve ever had to cover a major medical bill, unexpected auto repair, or other emergency, you know it’s hard to find cash right away. While having an emergency fund is one of the best financial buffers you can have, most Americans don’t have the extra money – let alone enough to cover an emergency. Fortunately, emergency loans can help cover big expenses if you don’t have enough cash when you need it most.
What are emergency loans?
An emergency loan is a unsecured personal loan that you can borrow to cover the costs of unforeseen expenses. The amount you borrow varies depending on how much you need to cover costs, but emergency loans tend to be relatively small, between $ 250 and $ 1,000. They are generally quick, with deposits within a day or two after approval of a loan. Some lenders can even fund loans on the day of application.
Since emergency loans are usually unsecured, you probably won’t need to post collateral to get one. However, some lenders offer personal loans that require borrowers to build up assets – like home equity and savings account funds – in order to borrow money. You can also get emergency loans through payday loans and credit card advances, but we recommend that you avoid these options whenever possible.
Personal loan standards vary by lender, so you will need to evaluate each option on a case-by-case basis. When comparing lenders, consider how much you can borrow, fees, minimum credit score, and income requirements.
What can I use an emergency loan for?
Like a type of personal loan, you can use an emergency loan for almost anything, such as:
- Medical bills. If you’ve been to the emergency room or had unforeseen medical bills, an emergency loan can cover those costs.
- Rent and mortgage payments. If your house payment is due soon and you don’t have the cash to pay on time, an emergency loan can help until you get paid again.
- Utilities. Keep the lights on and make sure your phone doesn’t turn off by using an emergency loan to pay utility bills on time. Staying up to date on your bills keeps you on top of spending and reduces the likelihood of your credit score going down.
- Funeral expenses. If a loved one dies and does not pay for funeral or other end-of-life costs, you may need to take out an emergency loan.
- Home or car repair. Although you can find a better interest rate and terms with a Home Equity Line of Credit (HELOC) or home equity loan, some home repairs require immediate attention (and payment). Likewise, auto repairs tend to pop up at the most inconvenient times. If you need to fix your car or finance home repairs and can’t afford to wait, an emergency loan can cover those costs as well.
Some personal loan lenders have restrictions on how you can use emergency loans. For example, you might not use them to pay for post-secondary education costs. Review the terms and limits of your potential lender before you complete an application.
Types of emergency loans
Emergency loans can take different forms, including:
- Personal loans. You can get an unsecured personal loan, which uses your credit score and history to determine eligibility, interest rate, and how much you can borrow. Some lenders also offer secured personal loans which are secured by personal assets such as cars, investments, and real estate.
- Payday loans. Payday loans are low amount, high interest loans. They usually don’t require a credit check, but have a quick turnaround time, usually requiring a refund before your next payday. These loans are usually $ 500 or less and the APR can be as high as 400%. If possible, we recommend that you avoid this option.
- Securities lending. A title loan is when you hand over title to your vehicle, like your car, in exchange for cash. If you don’t pay off the loan, your lender can keep your vehicle.
- Credit card advances. If you have a credit card, you can borrow money from your available credit balance. Interest rates for credit card cash advances tend to be higher than the APR for regular purchases, and you can expect fees on top of that (for example, transaction and transaction fees). treatment). Interest starts accruing when you withdraw money – there is no grace period – and increases the amount you have to pay back.
Where to get an emergency loan
While you can get an emergency loan from your credit card issuer or payday lender, we recommend that you get a traditional unsecured personal loan from a bank, credit union popular or from an online lender.
If you have a traditional bank account at a physical institution, you may be lucky to get a personal loan from there as well.
Banks have different processing methods than other lenders. For example, many banks have a higher credit rating or income requirements before they can qualify for a personal loan. And you might not get the money as fast as you need it, so check how long it takes for the funds to be deposited into your account before you apply.
If you have a credit union account instead of a bank account, you can get an emergency loan from a credit union. Credit unions are community-based and are friendlier to borrowers with good or poor credit.
Emergency loans from credit unions vary in amount, but many offer alternative payday loans between $ 200 and $ 1000. Remember, however, that some credit unions only lend to their members – or to people who have been members for a while. If you do not meet these requirements or need to borrow more, you may want to explore other options.
Online lenders offer a wide variety of emergency loans and most don’t require you to be a member or current account holder. Plus, many offer pre-qualification options so that you can see if you’re qualified to borrow an emergency loan before you apply. This can help you avoid a rigorous credit check which can negatively impact your credit.
While you might not feel comfortable taking out a personal loan from an online lender, keep in mind that many traditional banks also offer online applications and processing. Just make sure it is a reputable online lender with a secure website and a solid offer.
How to choose an emergency loan
When exploring many emergency lenders, it’s important to avoid choosing the first one you find. Find the best lender by considering:
- Funding time. How quickly can you get your money into your account? In one to two days is ideal. Some lenders can take more than a week to deposit funds while others can do so on the same day.
- Interest rate. While having great credit can get you the lowest interest rate available, you should also consider what lenders charge for less than stellar credit. Then compare the lenders to see how much you would pay with each based on your own credit score.
- Refund conditions. Do you want to make bigger monthly payments and pay off your loan sooner? Or do you need smaller, longer term payments? The terms of emergency loans vary by lender, but some require a minimum dollar amount to be repaid each month. So if you borrow around $ 500, you might only have a few months to pay it off.
- Fresh. Read the fine print to see the fees charged by each lender. The current costs of emergency loans include origination fees and late payment penalties.
- Credit score requirements. Most lenders have a credit score threshold that you must meet to apply for a loan. Your credit score will ultimately have an impact on your interest rate and how much you can borrow.
Each lender has different standards and requirements, so review as many as you can before applying for an emergency loan.
Emergency loan alternatives
Emergency loans are not the only option for borrowing money quickly. Depending on where your emergency loan is going, consider these alternatives before you apply for an emergency loan:
- Consolidate high interest credit cards. Consider a consolidation loan or one 0% balance transfer credit card.
- Cover the cost of home repairs. Leverage your home equity with a HELOC or ready. These are secured, using your home as collateral. The interest rates for HELOCs and other secured loans tend to be much lower than unsecured loans and the repayment terms are long enough that you can afford low monthly payments.
- Pay a medical bill. Talk to the hospital about setting up a repayment plan. Some have interest-free repayment plans, setting monthly payments that work for you. If you are having difficulty, consider a settlement option. If you can pay some up front, some hospitals will pay your bill for the lesser amount because they are paid immediately.
If you are really in pain for money, consider asking your family and friends for money. There are also nonprofits that can provide financial assistance based on your needs, such as if you are late on your house payment and want to avoid getting a lien on your house or evicting your house. if you are renting.
Borrowing money is never easy, but try to exhaust your other options, such as friends, family, or negotiating with lenders, before turning to emergency loans. If you’re strapped for options, emergency loans are a cheaper choice than payday loans, title loans, and credit card advances. Weigh all your options and decide what is best for your situation.