Emergency Loans of March 2023

What is an Emergency Loan?

Emergency loans are unsecured personal loans people take for urgent or unexpected expenses. Unsecured personal loans mean that the borrower takes money based on their creditworthiness. The lenders will decide whether to give an unsecured loan based on credit score, income, and debts.

Some lenders offer secured personal loans and co-signed loans you can opt for in case you cannot qualify for an unsecured personal loan. Secured loans require you to provide collateral and may be useful if you have a lower credit score. Co-signed loans ensure the loan will be paid off either by you or by your co-signer.

Emergency loans come with annual percentage rates (APRs) ranging from 6% to 36%. The maximum loan amount you can get is $100,000, while the minimum amount is $1,000.

How Emergency Loans Work

Emergency loans are installment loans with lump sum funding and regular monthly payments. The repayment terms vary from 2 to 7 years, depending on your loan amount. Personal loans have fixed interest rates, meaning you will have the same amount of payment for the total loan term.

Most lenders report loan payments to the three major credit bureaus. This allows you to improve your credit score if you make on-time payments. However, if you make late payments, this will affect your credit history negatively.

With unsecured personal loans, there are no limitations on how you spend the funds. You can use emergency loans for medical bills, dental bills, home repairs, car repairs, and unexpected expenses like travel, funeral, and more. Some lenders do not allow to use of personal loan proceeds for educational, vacation, university, or business expenses.

Types of Emergency Loans

There are many types of loan options you can apply for when you face an emergency. Yet, among personal loans, you can get, be especially careful with pawn shop loans, car title loan offers, and payday loans. They may increase your debt due to high-interest rates, or the lender may repossess your asset.

Pros and Cons of Emergency Loans

Pros

• You may receive funding the same day you were approved for an emergency loan.
• The funds may be used to cover the unexpected expenses of almost any kid.
• With good credit scores, you can get an emergency loan with a low interest rate.

Cons

• If your income and credit score are insufficient, you may not be able to qualify for the loan amount you need.
• The fees and APR may be high, causing you to fall into severe debt.
• There are predatory lenders offering high-interest loans and issuing hidden fees.

How to Choose an Emergency Loan

Before applying for an emergency loan, you need to determine the type of loan you want to get. Assess how much you can afford to pay back monthly and the lender you will work with.

Compare Interest Rates

The low interest rate emergency loans are available for the best borrowers or on secured loan options.

A longer loan term will come with lower monthly payments, but you will pay more interest over the loan life. Make sure you can cover both the loan balance and the interest before applying.

Check for the Fees

Most lenders have origination fees. These are upfront fees for the processing of emergency loans and may be up to 5% of your loan amount. Other fees include late payment and prepayment penalties.

If you have a lot of these fees, your personal loan will become expensive. Try avoiding emergency loans having a lot of fees if you are not sure you will make on-time monthly payments.

The Funding Time

Emergency loans suggest you need funds urgently. The funding time with some online lenders is the same day. With others, you can get up to three days, and banks may take up to a week to fund your loan.

Make a choice according to your situation, so you can get money on time.

How to Get an Emergency Loan

You can get an emergency loan from different financial institutions.

Online lenders allow you to get through the application process fast and get an emergency loan on beneficial terms. Look for online lenders capping their interest rates at 36%. The funding time is usually one to two days.

Banks and credit unions offer personal loans with stricter requirements but can ensure lower interest rates. Banks are the toughest to apply for, but if you have a bank account there and use the bank's services responsibly, you can get a personal loan easier.

The credit union is a non-profit institution allowing its members to apply for affordable loan options. Federal credit unions cap their interest rates at 18% APR, which is better than most online lenders. If you are a member of some credit union, you can apply for a personal loan there.

1. Check Your Credit Report. If you apply for an unsecured personal loan, the lender you apply for will check your credit history and credit score. You need to check your credit report for errors and mistakes before proceeding with the application. The minimum credit score you qualify for will not ensure you the best emergency loan lenders.
2. Assess the Monthly Payments. Determine how much are your affordable monthly payments. If the emergency loan offer turns out to be too expensive, do not apply. A personal loan calculator can help you determine how much the emergency loan will cost.
3. Pre-qualify for the Emergency Loan. Pre-qualification allows you to get the estimations of loan terms for your particular situation. You can pre-qualify online with most lenders and will get the decision in minutes. Pre-qualification requires only a soft credit check. It does not hurt your credit score, and you do not need to submit any documentation.
4. Compare the Offers and Apply. As you are pre-qualified, you can eliminate some emergency loans and proceed with an application with three offers. You will need to gather the documents, such as SSN, driver's license, W-2 forms, and pay stubs. The approval may take several days, after which you will get the funds and the loan agreement.

A month later, after you receive the funds, you will need to start making payments on your emergency loan. If you struggle with your monthly payment, try debt consolidation loans. This option allows you to merge your debts into a single one and have only one monthly payment to make.

Emergency Loans for Bad Credit

If you have a bad credit history and your credit score is below 630, you can still get an emergency loan on good terms.

You can apply for an emergency loan in the following ways:

• Apply with the co-signer. The co-signer can increase your chances of getting an emergency loan. Co-signer does not have access to your borrowed money but acts as a person responsible for loan payments if you cannot pay back the loan.
• Apply for secured loan options. If you apply for a secured emergency loan, you sign up your asset as collateral and only need to have a minimum credit history. The lender may repossess it if you default on the emergency loan. Most typical collaterals are home and car.
• Add other income. Your income plays an important role in your loan approval. The lenders use your income information to see if you can pay back the loan. If your lender allows you to submit other income sources, like alimony or child support, include them in your application form.
• Apply for a credit union. A credit union may have lower qualification requirements for its members. You can check for emergency loans and the criteria for application with your local credit unions. If the terms are favorable, you can apply or become a member and then apply for the loan.

Emergency Loan Alternatives

To cover unexpected expenses or emergency expenses, you can opt not just for personal loans. Try these alternatives before you apply for a personal loan.

• Borrow money from family or friends. Even the best emergency loans are quite expensive. Try asking your family or friends for financial help, as it may be the least expensive option for borrowing money. You will not need to pay the interest.
• Get credit card cash advances. If you open a 0% APR credit card, you may get a credit card cash advance on good terms. However, to qualify for an unsecured credit card, you need to have a high credit score.
• Take a home equity line of credit. You can get a loan against your home's equity. They usually have lower interest rates, but your home will be collateral.
• Ask your employer for a paycheck advance. Your employer might pay you ahead to help you through financial hardship. Paycheck advance apps may be an option if you need money up to $500. These apps do not allow you to get large loan amounts.
• Try hardship programs. The lenders have forbearance programs for borrowers struggling with payments. If your payments are paused, you can collect funds to cover emergency expenses.
• Check for medical repayment plans. Some hospitals have repayment plans allowing them to pay back over time.

Build an Emergency Fund

If you have emergency expenses to cover, you will not have enough time to build the emergency fund. However, to make your life easier in the future, it is better to make savings for urgent expenses.

You can start with the following ways to save extra money:

• Set up automatic transfers to your savings account. It will allow you to grow savings instead of spending all your funds.
• Put your tax refunds, economic impact payments, and rebates into your savings account.
• If you have a cash rewards credit card, you may get extra money by using the card for cash back.
• Create a monthly budget to determine how much you spend on different categories and how much you can send to your savings account.

If you manage your funds responsibly, you can set aside some money to cover unexpected expenses that might occur in the future. This way, you will not have to borrow emergency loans.