What is an Emergency Loan?
Personal loans for emergency expenses are personal loans that can be used to cover unexpected expenses such as car repairs or medical treatment. Emergency loan can have higher interest rates than other types of loans.
There are many types of emergency loans, each with its own features. They are often available for as little as a thousand dollars and can be disbursed in a matter of days. Many lenders will even approve you for an emergency loan and disburse the funds within a few days. This makes it easy to meet urgent needs.
Who are the best candidates for emergency loans?
An emergency loan is a great option if you require quick cash to pay for an urgent expense. Let’s suppose your air conditioner suddenly stops working in the middle of summer. An emergency loan can help you get the money you need to fix it quickly. If you have lost your job suddenly and need extra cash to pay your bills, an emergency loan could be a good option.
Types of emergency loans
There are many options for getting emergency funds. There are many types of emergency loans:
Personal loans. These loans can be disbursed quickly and sometimes even within the same day as approval. Personal loans are often less costly than credit cards. While credit cards can have interest rates up to 16 percent, personal loans tend to be lower in cost. The average personal loan interest rate is below 11 percent. Borrowers with good credit can get rates as low as 5.99%.
- Best for: This option is best for borrowers who are able to meet the lender’s approval requirements. It might also be the best option for those in financial positions to get the lowest interest rate.
Home Equity loans.Home equity loans and home equity credit lines (HELOCs), are less popular for emergency use because they take longer to disburse funds. They will typically offer the lowest rates because they are secured by your home.
- Best for: Home Equity Loans and HELOCs work best for borrowers with enough equity in their home to meet the lender’s requirements — usually at least 15% to 20%. This might be an option for you if your finances are strong enough to repay the loan on time and not have your home foreclosed upon.
Cash advances from credit cards. A cash advance is a short-term loan that your credit card company might offer. Although this type of loan is the fastest way to get money, the fees and interest rates can be high.
- Best for: Borrowers who are unable to wait until the next business day to get funds from a personal loan can consider a cash advance. This could be an option if you are able to repay the debt in a matter of months. However, be aware that there may be high interest rates.
Payday Loans. Short-term loans don’t need a credit check. They are usually repaid by the next payday. Payday loans can be very risky so they are not recommended. They charge high interest rates and fees and you could end up deeper in debt.
- Best for: This type loan should only be used as a last-resort option for borrowers who are unable to qualify for a loan from a lender with a lower maximum rate.
What is the process of emergency loans?
Because an emergency loan is a personal loan, many lenders won’t advertise them as such. You should look for a lender that offers fast approval and quick funding for the loan amount you require.
After getting quotes from several lenders, you will submit your application to the one that offers the best terms and interest rate. During this stage, you will likely need to verify your identity and income. Funds can be sent to your bank account once you have been approved.
Be cautious when applying for an emergency loan. Lenders might try to con you, or take advantage of you. Attention to:
- No credit checks required Although a loan without a credit check might be appealing to someone with bad credit, these lenders can often charge exorbitant APRs to mitigate the risk.
- Terms of repayment: Avoid payday loans whenever possible. These loans often require that you make monthly payments of at least 30%. You will be able to repay your emergency loan faster and your monthly payments will decrease if you have a longer repayment term.
- State registration Since each state has its own loan requirements, not all lenders can be registered in every state. Check to make sure that your potential lenders have been registered in your state before you submit your application.
- Upfront fees A company promising loan approval regardless your credit score and requiring up-front fees may be running an advance fee loan scam. These are scammers who collect money for processing applications, but never actually issue loans.