Last Updated on May 20, 2021 by MoneyVisual
Medical emergencies, unexpected car repairs, and natural calamities come when you least expect them. If you don’t have enough cash to cover emergency expenses, an emergency loan provides you with the funds you need to address these expenses ASAP.
What is an Emergency Loan?
Emergency loans are unsecured loans specifically used to cover emergency expenses. The amount you qualify for largely depends on how much you need, but generally, emergency loan amounts are relatively small, around $250 to $1,000. You’ll usually receive the money within a day or two after approval. Some lenders can even deposit the money into your account on the same day.
Types of Emergency Loans
Here are some examples of emergency loans:
1. Personal Loans
Personal loans can either be secured or unsecured, and the loan amount typically varies between $250 to $1000. As the name suggests, a secured personal loan uses your personal assets to secure the loan, minimizing the risk lenders take on. As a result, the rates and terms of secured loans are more favorable compared to unsecured loans.
On the other hand, the rates, terms, and loan amount of unsecured loans are based on your creditworthiness. For instance, having a poor credit rating may result in higher fees and rates.
2. Payday Loans
Payday loans are relatively easier to apply because the qualifications and requirements are less stringent, making payday loans one of the most popular types of emergency loans.
Furthermore, the interest rates for payday loans are incredibly high. The APR can go up to 400%, and payday lenders only give you 14 days or until your next paycheck to repay what you’ve borrowed.
3. Credit Card Cash Advances
A credit card advance involved withdrawing cash from your credit card account. You’re essentially borrowing against your credit card to receive upfront cash. Like payday loans, credit card cash advances, and the interest accumulates instantaneously after the money has been taken out. If you aren’t cautious and wary, you might end up refunding a lot more.
Where to Get Emergency Loans
Here are some of the places where you can get emergency loans:
Banks are the first place people check when they need to borrow money since they provide competitive interest rates and terms. However, banks often require higher credit and income compared to other financing institutions. It also usually takes longer for banks to give you the money, so be sure to check how long it takes before applying.
2. Credit Unions
You can also get a loan from credit unions instead of a bank. These institutions are community-based, and they’re more friendly towards borrowers with poor credit ratings. They offer $500 dollar loans with bad credit to $1,000 loans.
Remember that some credit unions only lend money to their members or to those who have been members for a specific amount of time. You can explore other options if you don’t meet the requirements or if you need to borrow more.
3. Online Lenders
Online lenders offer different types of emergency loans, and more often than not, you don’t have to be a member or a current account holder to qualify.
The entire application process is fully automated and will only take a few minutes to complete. Be sure to know your options and choose a reputable online lending company with a secure website and competitive offerings.
Factors to Consider When Applying for Emergency Loans
Emergency loans are available in many institutions. Each of these institutions has its own set of requirements, terms, and conditions to follow. Here are the steps to obtain an emergency loan.
1. Credit Score
Your credit score gives lenders an idea of how reliable you are as a borrower. The higher the credit rating, the more favorable the terms are. Knowing your credit score allows you to determine the best type of loan suitable for your current situation.
2. Rates, Terms, and Lending Companies
There are different types of emergency loans, each of which also has different rates and terms. It’s best to compare several lending companies, loans, and rates before finalizing everything.
3. Funding Time
Time is of the essence when it comes to emergency loans, so before you apply, you need to know how soon you can receive the money. One to two business days is ideal, but some lenders take a week to give you the funds, while others can deposit the money on the same day.
When you need cash in a pinch, you might be tempted to settle on the first lending company you can find. However, the terms, rates, and types of emergency loans vary, and it pays to take the time to compare your options. Consider the loan amounts, fees, and minimum credit rating and income requirements.