Emergency Loans to Fund Your Unexpected Expenses

Who are emergency loans best for?

Emergency loans may be best for someone who:

• Has time-sensitive or urgent expenses, and saving enough isn’t an option.
• Doesn’t have enough cash on hand or savings to cover an emergency expense.
• Can afford the loan’s monthly payment.
• Has a solid enough credit score and history to get a lower APR to avoid additional debt.

Just remember, not all emergency loans are the same, and some are better or more recommended than others. Take time to compare your options and be sure you’re choosing the right one for you.

Pros and Cons of Emergency Loans

Pros	Cons
Fixed monthly payments	Taking on more debt
Fixed interest rate	Tough to get with bad credit
Flexible payment terms	Doesn’t solve original problem

Alternatives to emergency loans

Alternatives to emergency loans depend on the emergency itself. Some emergency expenses can be resolved with a credit card. Others require an influx of new cash from an outside source. If the personal loan option is not right for you, try one of the following:

1. Zero-interest credit card

If your expenses are smaller and you have an excellent credit score, consider applying for a 0% APR credit card. You won’t have to pay any interest on the balance for a certain period of time on purchases and/or balance transfers. Just be sure to pay off the balance before the intro period ends.

2. Home equity loan or HELOC

This is essentially putting your house on the line to pay for the emergency. That is a serious gamble, one that could lead to homelessness if you cannot afford to pay the loan off. Put some careful thought into doing this.

Related: Home Equity Loans vs. Home Equity Lines of Credit

3. Repayment plans

If you need quick cash for medical expenses, talk to your provider or hospital about setting up a repayment plan or if there are other financing options available to you. For example, some allow you to pay a portion up front in cash and then they will settle your bill for the lower amount. Or, they may have a monthly repayment plan.

4. BNPL

If you need an emergency loan for a purchase, you may be able to use a “buy now, pay later” app to split the purchase into smaller payments. Often these payments are bi-weekly and for a short period of time, you won’t owe interest (which can save you money). Many BNPL apps also offer monthly payment plans, though most do have some interest.

5. Nonprofit organizations

Some local nonprofits, charities, and religious organizations may be able to offer financial or other assistance if you’re in need.

6. Borrow from friends or family

If you have a trusted friend or family member, ask if you can borrow the money you need. Just be sure to set clear expectations and create a repayment plan and timeline.

7. Ask your employer for an emergency loan or paycheck advance – or, consider using a loan app

You may be able to ask your employer for a direct advance on your paycheck, while some employers use a third-party as part of their benefits package. HoneyBee, Salary Finance, TruConnect, and others, provide small personal loans (typically no more than $5,000) through an employer’s benefits portal. The downside to these is that APR can be high and payment terms can span from a few months to a few years, but they are typically deducted from your paycheck.

Loan apps like EarnIn or Dave can also be cash advance options where you can borrow a small amount from your next paycheck.

Steps for building an emergency fund

One way to prevent needing an emergency loan is by building an emergency fund. Even if you’re in need of quick cash now, it’s never too late to start building one for emergencies in the future.

An emergency fund should be able to cover at least six months’ worth of expenses, and should only be accessed in an emergency. Some tips to get you started include:

1. Keep track of your spending and set a realistic budget to ensure you’re only spending on necessary expenses and putting everything else aside until you’ve built up your emergency fund.

2. Set up an automatic transfer in your checking or savings account. Each week or month, transfer a small amount of money automatically into your emergency fund.

3. If you get a tax refund, economic impact payment, rebate, or other type of unexpected income, put it in your emergency fund.

4. Take advantage of cash back credit card rewards and automatically transfer them into the emergency fund account. You can save as you spend.

5. Explore liquid, high-interest savings accounts for your fund. This gives you access to the cash when you need it, but can make the savings work for you and earn as you save.

How will an emergency loan impact your credit score?

An emergency loan will impact your credit score in a few ways:

• Your score is not affected if you get prequalified for loan because it will only trigger a soft credit check, which does not impact your score.

• Your score will go down slightly when you first take out the loan due to the hard credit inquiry from the lender.

• Your score will then steadily rise as you make your monthly payments on time. However, if you make late payments or miss them altogether, your score can significantly decrease.

Emergency personal loans for bad credit

There are potential catch-22’s in this scenario. Financial emergencies often lead to bad credit. Getting an emergency loan with bad credit is more difficult and expensive. Interest rates will be higher and the amounts available to borrow could be lower. Lenders consider anyone with a credit score under 670 as “bad credit borrowers.”

Pros and cons of emergency loans for bad credit

Pros	Cons
Instant money	High interest
Fixed interest	Low approval rate
Manageable payments	Fees and penalties
Improved credit score	Debt trap

This list does not apply to all emergencies, but it is standard for most people applying for emergency loans with poor credit. The benefits are fast cash, fixed interest, manageable monthly payments, and a chance to improve their credit score by making monthly payments on time. At first glance, that looks like a good deal.

Of course, lenders will charge a higher interest rate and approval is difficult with a lower credit score. It is not impossible, but you can expect to pay a high price for it. The origination fee and monthly charges are high, not to mention the penalties you will incur if you are late with your payments. Debt trap, which is getting caught in an endless borrowing cycle, is also possible.

How do I qualify for an emergency loan?

• Decide on the amount you want to borrow.

• Check your credit score before applying.

• Research lenders that specialize in emergency personal loans both online and in person (more details below).

• Most lenders look for a good credit score, usually at 670 or above, for a larger loan.

• Applicants with lower scores can qualify for smaller loan amounts with higher interest rates.

How to choose and compare emergency loan lenders?

Be careful when you compare emergency loan lenders because online search results will contain some of the short-term varieties of loans that we mentioned above. What you’re looking for is personal installment loans. Find lenders who offer those and compare the features below. Ask as many questions as you like until you feel comfortable. Compare features like:

1. Credit score requirements: Most lenders will not accept applications if your score is below a certain number. Make sure you meet the credit score requirements and if not, take steps to improve your score before applying.

2. Funding times: If you need an emergency loan, you need the funds fast. Check to see how soon you can get the money into your account. Some lenders may offer same or next-day funding while others may take up to a week.

3. Interest rates: Interest rates vary, depending on the borrower’s credit score and the current prime rate. Higher credit scores typically mean lower interest rates, but compare lenders to see how much you’d pay based on your own score.

4. Terms and conditions: The terms and conditions outline the number of months you’ll have to pay the loan off and what the fixed monthly payment will be.

5. Available loan amounts: Some lenders have minimum amounts you can borrow, and others have maximums for poor credit borrowers.

6. Origination and repayment fees: There may be an origination fee to get the loan and there could be an early repayment fee if you want to pay it off early.

How to apply for an emergency loan?

Select your preferred lender, choose an amount, and fill out the application online or in person. You will need the following documentation in physical or digital format:

Valid State Driver’s
License or State ID

Proof of current
employment
(Paystubs)

Valid checking account
for direct debits

Most recent
W2 or 1099

The lender will also run a credit check. This will result in a “hard inquiry” on your credit report that might drop your credit score by a few points. The loan itself could also have this effect, but your score will go up again if you make all your monthly payments on time.