There are times in life when we all need just a little extra money. That’s not an emergency. It’s a gentle reminder to work on your budget. An emergency is a life-altering event, one that you absolutely need help with. Examples of this are natural disasters, pending foreclosures, and unexpected medical situations. Those are instances when an emergency loan is needed.

What is an emergency loan?

Emergency loans come in two categories. The first is your traditional personal installment loan. These require a decent credit score and verifiable income. The second type of emergency loan is the short-term, secured variety, like payday loans and title
loans. For the purposes of this article, we’re going to focus on the first variety.

How do they work?

An online search for “emergency loans” will yield hundreds of results, all of them lenders that are offering personal loans which they have classified as emergency loans. They’re unsecured installment loans. The borrower does not need to put up collateral and the repayment terms will be for fixed monthly payments over a period of months or years.

Pros and Cons of Emergency Loans

ProsCons
Fixed monthly paymentsTaking on more debt
Fixed interest rateTough to get with bad credit
Flexible payment termsDoesn’t solve original problem

There are benefits and drawbacks to taking out a personal loan for medical expenses.

On the pro side, the borrower gets fixed monthly payments, a fixed interest rate, and flexible payment terms that can be stretched out over several years if necessary. Making payments on time, like with any credit account, can help improve your credit score.

The cons are a little more subtle. Many borrowers apply for emergency loans because they’re having financial difficulties. This is taking on more debt at the worst possible time. People in that situation often have bad credit, which makes it harder and more expensive to get an emergency loan. Ultimately, the loan doesn’t solve the problem. It just puts it off.

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:

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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.

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Payday Loan:
This is one of those short-term options we mentioned above. Payday lenders charge exorbitant fees and interest rates, but they will give you money on the spot without a credit check. All you need is a job and a paycheck to qualify.

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Title Loan:
Like payday loans, title loans do not require a credit check. The loan is secured by the title to a car or other asset that the lender will own if you default on the loan. Approval is quick and cash is available immediately, but usually for lesser amounts.

Emergency 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

ProsCons
Instant moneyHigh interest
Fixed interestLow approval rate
Manageable paymentsFees and penalties
Improved credit scoreDebt 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?

Qualifying for an emergency loan involves choosing an amount, checking your credit score, researching lenders online and in person, and then applying. Most lenders look for credit scores of 670 or above, but applicants with lower scores can qualify for smaller loan amounts with higher interest rates. We’ll go over that in more detail below.

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-checking-account

Valid State Driver’s
License or State ID

Proof-of-current

Proof of current
employment
(Paystubs)

Valid-State-Drivers

Valid checking account
for direct debits

Most-recent

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.

How to 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.

Interest rates:

Interest rates vary, depending on the borrower’s credit score and the current prime rate. Rates are low right now. Expect them to go up in 2022.

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.

Available loan amounts:

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

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.

Commonly asked questions about personal loans

There are several online lenders and traditional banks where you can get an emergency loan. Look for lenders that offer personal installment loans.

Yes, an emergency loan will impact your credit score. Your score will go down slightly when you first take out the loan, then steadily rise as you make your monthly payments on time.

Some lenders can approve you for an emergency loan and have funds in your account on the same day. Others could take up to a week, depending on the amount of the loan.