Emergency loans are taken out by people who have an immediate need for cash, for example when a financial emergency occurs or when unexpected bills and expenses come in and your salary won’t stretch far enough. This can allow them to pay urgent costs they cannot afford in a way that may help them to avoid seriously damaging their current financial situation. These short term loans can be secured or unsecured and can lend even small expenses, as little as $100 to a borrower.
However, it would be best to avoid taking out such a loan unless it is absolutely necessary as they often involve high-interest rates. Furthermore, if you cannot repay the loan, you are liable to damaging your credit and banking history. Often, when it comes to needing to borrow money instantly, there are few alternative options because time and speed are of the essence. You may for example need to get a $3000 loan in order to pay for some emergency car or vehicle repairs and you need the money as fast as possible.
Nonetheless, taking out an emergency loan may be a necessity for some, and so it is important to gain a comprehensive understanding of when you should take one out, and what such a loan may involve.
Why Do People Need Emergency Loans?
Some of the most common reasons for taking out an emergency loan are having to pay for an unforeseen personal event, such as a funeral or a divorce. Having to pay medical bills may also cause you to need such a loan, which may come in the form of medical bill loans, which are designed to help borrowers specifically pay for the costs associated with medical and hospital care in the US.
Having to cover emergency household bills is another likely reason for taking out an emergency loan. For example, if an appliance breaks or if you find you have a leaky roof.
A car repair may also cause you to take out an emergency loan; especially if the vehicle is, for example, a necessity for work or you do not have access to public transport or another means of getting to work.
What Emergency Loans Are Available?
There are a range of secured and unsecured loans that you could take out to cover an emergency. However, make sure to check your state regulations before applying for a loan as, for example, payday loans are legal on many US states but they are not legal in all states. States like Texas and Florida allow payday and short term lending whilst states like New York do not allow it. Other things to consider are the interest rates that each loan charges, and the repayment plan they offer.
Although you may utilize loans like payday loans to help you in times of emergency, it may be the case that these loans are not funded quickly enough or you can’t get a fast enough decision on the loan. This can leave you waiting for the money you need for your emergency. Emergency loans, like fast cash loans, are designed to be able to get you the money you need as quickly as possible; often on the same day as applying.
Personal Loans in an Emergency
If you are in need of an emergency loan, there are different types of personal loans that could be considered. Personal loans are offered by lenders such as banks, credit unions, and online financial institutions. Alternatively, you can borrow a lump sum and pay it back in installments. This may be the case if you borrow $1000 for example and repay it over a few months in more manageable installments, rather than in one lump sum as you may have to do with the likes of payday loans.
Personal loans are the best for borrowers who are looking for lower interest rates than credit cards and high borrowing limits that do not require collateral.
Credit Card Cash Advances
Credit cards can be useful tools in the event of an emergency. Many credit cards offer a cash advance feature that you can utilize based on your card’s limit or set maximum amount. Of course, the people that are taking out these loans must have the necessary feature as part of their bank. Besides this, these loans would work best for those who have a good credit history and only need to borrow a small amount.
If you do not repay the minimum amounts on your credit card, you may end up harming your credit score and ending up with bad credit, which will negatively affect your chances of being accepted for any loan or line of credit in the future.
Emergency Payday Loans
A payday loan is an instant loan that lets you borrow a small amount of money. Its repayment is usually due on or around the date of your next pay check. These loans come with high-interest rates, so if you do not have cash now, you should consider if you will definitely have it in the future in time to make your repayment date. There are also different laws and regulations when it comes to payday loans in the US, with regulations on lending being at a state rather than a national level.
This means that some states allow payday lending whereas others do not and even in the states which do allow payday lending, there may be different laws and rules around things like the amount of interest which a lender can charge borrowers as well as what can happen if a borrower cannot make their repayments.
Emergency payday loans are very similar to emergency cash loans, as they are designed to help borrowers get the money they need fast, when they need it most for a financial emergency. The money can be funded very quickly, with repayment terms being agreed between the borrower and the lender.
A title loan, or a car title loan, is a secured loan where borrowers can use their vehicle title as collateral. If you are unable to repay the loan on the set date, the lender can repossess your car to settle the outstanding debt. As a title loan involves providing collateral, this loan would best suit a borrower who is only borrowing a small amount and can repay their loans within a month (which is the typical loan term).
Title loans may allow you to borrow a larger sum of money, as it is a secured loan option. Therefore, if you need to borrow $5000 or even more, lenders may prefer to allow you to borrow in the form of a title loan, which provides your vehicle as collateral on the loan and therefore, reduced risk for the lender. For people that need a loan with bad credit, title loans may also help them access the loans they would otherwise be unable to do so.
Are Emergency Loans Always a Good Idea?
Emergency loans can be a life saver in times of financial emergency and when you need money fast to pay off something urgent. They can enable borrowers to get the money they need fast and in their account as soon as possible, in a way many other loans may not be able to. Although they can offer cash quickly, they often involve high-interest rates and may even require some collateral in cases of secured emergency loans. Therefore, they should only be taken out in the case of an emergency. But if you do need to take out an emergency loan, personal loans offer the lowest out-of-pocket cost to borrow.
When Should You Try to Avoid an Emergency Loan?
If an emergency loan is a necessity to cover an unavoidable expense, you might consider getting out such a loan. However, you should avoid getting out an emergency loan if it is not a necessity and if the expense or bill you will be using the loan for can wait a little longer until you can access your savings or money from a cheaper source.
Remember, you will have to repay the loan plus any interest charges, which may end up weighing you down in the future. If you cannot repay the loan, you are also at risk of damaging your credit and banking history and ending up with a bad credit score or even very bad credit will harm your future chances of getting a loan in any form.
You should also make sure that you do not rely on getting out emergency loans to cover your costs. If you see it becoming a habit, you should consider serious budgeting and a lifestyle change.
If you do not truly need the loan, it should be avoided if possible. Some other alternatives to getting out an emergency loan are:
- Borrowing from family and friends
- Using savings that you have built up
- If you’ve built up enough equity in your home, you may be eligible for a home equity loan
- Negotiating a payment plan for a bill instead
- Getting a pay check advance
In the future, you may want to consider building up an emergency fund so that you will have a way of handling anymore unexpected expenses. This can prevent you from having to take out any more emergency loans in the future.