Have you ever been blindsided by an unexpected expense?
Maybe your car broke down? Or did a surprise medical bill suddenly show up?
We’ve all been there, staring at the bill, wondering how you will be able to manage or pay it.
Sometimes, life throws a curve ball, and it may seem like we can’t do anything about it.
But whatever that emergency is, there are various types of emergency loans to choose from.
Most emergency loans offer quick access to cash when you’re in time of need.
If you still don’t have emergency savings, emergency loans are a good alternative in times of crisis.
With over 25 years of experience as a banking expert and financial coach, I’ll not just reveal the different types of emergency loans, but below, I’ll also show how they work and the benefits of getting one.
Before applying, consider your loan purpose, loan amount, interest rates, and repayment terms to ensure that the loan is the most suitable.
Now, let’s get to it!
What is an emergency loan?
As the name suggests, an emergency loan is one of the best options if you need funds immediately.
This alternative financing option helps cover various expenses if in case you need to pay a large, unexpected expense.
If you’re worried about your mediocre credit, don’t worry since many lenders are still willing to work with you.
However, emergency loans tend to have shorter terms (typically within weeks or several months) and high interest rates and fees.
Depending on the loan type and the lender, you’ll most likely get access to the funds quickly.
Some lenders only take a day to process your loan application, unlike traditional banks, which will take about weeks.
How Do Emergency Loans Work?
You must first choose a loan type to determine how emergency loans work.
But generally, the process starts by applying for the amount you need to finance any emergency expense.
When applying for an emergency loan, you’ll most likely need to provide your personal and financial information so lenders can assess your creditworthiness.
Once approved, you and the lender will sign an agreement outlining the loan amount, interest rates, terms, fees, and repayment schedule.
After signing the deal, the lender usually disburses the funds within one business day, helping you quickly address the emergency.
Keep in mind that making regular monthly payments is crucial.
Missed payments can cause a massive drop in your credit score, which will also affect your loan approval the next time you try to take out a loan.
Benefits of Emergency Loans
Emergency loans don’t just offer quick funding. Still, they may also have competitive interest rates and flexibility, making it one of the best financing alternatives out there, especially if you’re in a financial crisis.
- Quick funding: Most lenders, especially online ones, offer quick online applications that can be completed in just a few minutes in the comfort of your home. Funds can be given directly to your account within hours of approval.
- Competitive interest rates: Although interest rates for these loans are competitive, they’re still lower than credit card interest rates.
- Flexibility: Emergency loans like personal loans tend to have flexible repayment terms. Lenders can offer between two and five years for the repayment terms.
Different Types Of Emergency Loans
Having access to quick funding is crucial when it comes to emergencies.
However, it’s also important to understand that not all types of emergency loans are suitable for every situation or problem.
Consider the repayment terms, additional fees, and your eligibility when applying for any type of loan.
Without further ado, here are nine of the best emergency loans that can help you through tough financial times.
1. Personal loans
In a personal loan, lenders give you the cash immediately, with terms that will be paid in fixed monthly installments, which usually range between one and seven years.
One of the best advantages of taking out a personal loan is that you can get the funds as fast as one business day after you apply or get approved.
You can find personal loans in banks, credit unions, and online lenders.
2. Payday Loans
A payday loan allows you to borrow a small amount (typically less than $1,000) without a credit check. However, it comes with a high-interest rate.
Payday loans offer fast and easy access to funds during trying times.
Funds are often disbursed within the day or the next business day.
You can find payday loans online or a storefront lender.
Remember to use your payday loan carefully. You’ll be required to repay it on your next pay date, which is usually within one to four weeks.
3. Cash Advances on Credit Cards
You can cash advance on your credit card if you’re currently at an ATM or near a bank. This allows you to withdraw a portion of your credit limit in cash.
Cash advance offers one of the easiest ways to access funds.
It’s so easy; you don’t need to complete a formal loan application.
However, it will be costly since it will include fees and higher interest rates.
Remember to repay it on time, as interest charges can increase if you don’t repay the advance immediately.
4. Title loans
Title loans help get you fast funding secured by the equity in your vehicle.
Title loans allow you to borrow against 25% to 50% of the current market value of your car.
These loans tend to have shorter terms. Repayment periods are often as short as 15 to 30 days.
You can still qualify for these loans even if you currently have fair or poor credit since a hard credit check is not required.
Moreover, title loans are secured loans since they require your car as collateral if you cannot repay the debt.
5. Home Equity Line of Credit (HELOC)
Another type of emergency loan is a home equity line of credit.
This loan is a form of credit where your home is collateral.
This allows you to borrow against the equity of your property.
In HELOCs, you must understand that you may lose your home if you default on the loan.
So before signing or applying to anything, consider your personal assets as well.
6. Loans from Friends and Family
Furthermore, you can also get loans from family and close friends.
Loaning from friends will be easier since the application process or approvals will be quick or even sometimes unnecessary.
One awesome perk in loaning from friends and family is that it often comes with low to no interest.
Friends and family are typically more flexible on repayment terms, especially if you’re currently in a financial crisis.
However, these financial dealings can potentially hurt relationships when borrowers don’t repay the loan as planned.
7. Pawn Loans
Pawn loans are where you borrow money against the value of a prized item that will serve as collateral for pawnbrokers.
Pawnbrokers will examine your item’s value and offer a loan amount based on a certain percentage of that value. And don’t worry; this will not affect your credit score.
In pawn loans, you’ll get the funds instantly once you’ve agreed to the terms.
However, in pawn loans, you usually get less than the item’s actual value.
Types of Emergency Loans: Final Thoughts
In life, there are things we can’t control, and sometimes things don’t go our way.
And when these trying times come, you should know where exactly to get quick and easy access to cash.
Emergency loans offer almost instant access to cash to fund almost any emergency that you may encounter.
You can choose from personal loans, payday loans, cash advances on credit cards, title loans, home equity lines of credit, pawn loans, or even loaning from a close friend or family member.
However, it’s still best advised that you have a separate savings account for emergency expenses.
This can help you save more money in the long run since you won’t pay any interest or additional fees.