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.

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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.

How do I use an emergency loan?

An emergency loan can be used for just about anything, such as medical bills, rent or mortgage payments, utilities, home or car repairs, or other unexpected or unplanned finance needs. Be sure to compare personal loans and read the terms and conditions of the loan to ensure there are no restrictions.

Once you apply for the loan and are approved, you’ll get the funds in a lump sum. You can then use those funds as you need them, but be sure to start making payments when they are due to avoid impacting your credit score and getting further into debt.

Where can I get an emergency loan?

The three recommended options for getting an emergency loan include banks, credit unions, or online lenders.

  • Banks may have higher credit score or other requirements, and they may also have higher interest rates depending on your qualifications. These institutions also take longer to process applications and fund the loan, so if you need the cash quickly, talk to the bank first. You may have better luck if you’re an existing customer.
  • Credit unions are typically only an option if you’re a member, but they typically have lighter requirements and you can get better interest rates. Credit unions also offer payday alternative loans with better repayment terms.
  • Online lenders are likely your best option for an emergency loan because their processes can be quicker, and most allow you to get prequalified before even applying to see if you qualify and what your interest rate and monthly payment would be. They may also have more flexible credit score requirements.

What are the different types of emergency loans?

There are a few different types of emergency loans:

1. Personal loans

You can get an unsecured personal loan pretty quickly with an online lender. Some lenders have application, approval, and funding processes that take one or two business days. Your ability to qualify, and the interest rate you get, depends on your credit score and history, income, and other factors. The best personal loan for you is one that has a lower APR and monthly payments you can afford.

Related: How to Get a Personal Loan

2. 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.

3. 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 to avoid

While payday loans and title loans are types of emergency loans, and you can get cash quickly, they should be avoided at all costs. These loans are risky options with significantly high APR (even up to 400% or more), and if you don’t repay the loan within the short term, you can quickly fall into a cycle of debt or lose your assets.

Another emergency loan to avoid is a pawn loan, when you give a valuable item to a pawn shop, it assesses the value, and then gives you a loan based on that valuation. It must be repaid with interest or you’ll lose the item. These loans also have very high APR and you’re risking your items.

Finally, credit card cash advances should also be avoided if you can. A cash advance is when you borrow cash available through your credit balance. These advances typically have much higher APRs than regular purchases, and you’ll also be charged fees. Plus, interest starts accruing right away, so you’ll quickly be increasing the amount you have to pay back.

Who emergency loans are 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.

Related: Reasons to get a personal loan

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

ProsCons
Fixed monthly paymentsTaking on more debt
Fixed interest rateTough to get with bad credit
Flexible payment termsDoesn’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. 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.

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. 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

Advice 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:

  • 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.
  • 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.
  • If you get a tax refund, economic impact payment, rebate, or other type of unexpected income, put it in your emergency fund.
  • Take advantage of cash back credit card rewards and automatically transfer them into the emergency fund account. You can save as you spend.
  • 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 an emergency loan will 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

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?

  • 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 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.

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.

FAQs

When you have an emergency fund, you’re decreasing your chances of needing an emergency loan in the future. An emergency fund can cover any of those unplanned expenses instead of having to take out a loan.

The way you repay the emergency loan depends on what type of loan it is, but for most, it’s a type of installment loan. This means you make a payment of a certain amount in installments over a designated period of time until the loan is repaid.

Even if you don’t have a job or income, you can still get an emergency loan, though your options may be a little riskier and it’s not recommended to increase debt without a guaranteed way to repay it. Options can include a pawn shop loan or title loan.

Some types of emergency loans don’t require a credit check, such as a pawn shop loan or payday loan. Some online lenders may also offer personal loans with no or bad credit. However, keep in mind you’ll likely have very high APR and may be risking assets you must provide as collateral, so proceed with caution.

If you’re a veteran and need emergency funds, the best place to look is a credit union that caters specifically to veterans and military members, or a bank or online lender that has favorable rates and terms. When comparing emergency loans for veterans, consider possible discounts you’d be eligible for through the institution, while also comparing rates and fees.

The first step in getting an emergency loan online is to compare personal loans and lenders. If you can get prequalified for a more personalized estimate of APR and monthly payments, do so. You can then apply for the loan online, and get approved quickly. Once you accept the loan’s terms and conditions, you’ll receive the loan funds within a short period of time.

The actual amount in the fund depends on your lifestyle, monthly costs, income, dependents, and other factors, but experts recommend having at least three to six months’ worth of expenses in your emergency fund. The goal is to have enough saved so if you have an emergency, you don’t have to get an emergency loan and risk getting further into debt.