Why You Need an Emergency Loan
When unexpected expenses occur, you might need to pull money urgently to cover them. Some people have emergency funds to cover urgent expenses, but more frequently, people take emergency loans.
Emergency loans can be used for the following expenses:
- Medical bills and veterinary
- Home or car repairs
- Funeral costs
- Job loss
- Travel expenses.
Emergency loans are typically unsecured personal loans. Because personal loans have wide usage and are not heavily limited to their purpose, they suit best to cover your emergency expense.
However, not all applicants can get an unsecured personal loan. People with low credit scores either cannot qualify with personal loan lenders or get emergency loans with high interest rates and low loan amounts.
There are still bad credit personal loans you can apply for with a bad credit score. These loan options do not require you to go to payday lenders or take expensive loans. Secured loans can act as good emergency loan options for bad credit borrowers, as well as co-signed loans.
How Emergency Loans for Bad Credit Work
Emergency loans for bad credit are not widely spread. You cannot find personal loans for bad credit with banks. This means you need to look for other lenders.
Secured Personal Loans
Personal loans can be secured by your asset. You sign it up as collateral, and in case of default on your emergency loan, the lender can repossess it and sell it to cover your loan amount.
Secured personal loans usually come with lower interest rates, as the lenders handle less risk with collateral. The loan cost will be covered even if you fail to pay it back.
The downside here is that you may lose your valuable asset. Because collaterals for large loan amounts are usually cars or homes, it may become serious trouble if you lose them.
Apply for secured personal loans as emergency loans for bad credit only if you are confident you can repay.
Co-signed Loans
Some emergency loan lenders allow their applicants to apply with a co-signer. This person cannot use your funding but is responsible for paying back if you default.
Co-signers should qualify for all the loan approval requirements. They must have high credit scores. It proves difficult to find a person with good credit willing to become responsible for your repayment terms.
When applying for this emergency loan for bad credit, make sure you will adhere to repayment terms. If your lender reports payments to credit bureaus, you can improve your score and apply for better loans yourself.
If You Have a High Income
You can apply for the same unsecured loans for bad credit if your debt-to-income ratio is low. High-income borrowers can show the emergency loan lenders that they can pay the loan back.
If you have sufficient income, you will receive approval but at higher interest rates. Once the lender pulls your credit report, they will see all the previous defaults. The reports need to show that the troubles that caused your credit score to go down are now resolved.
Where to Get an Emergency Loan for Bad Credit
More financial institutions offer bad credit loans. You can opt for online personal loans, payday loans, and personal loans from credit unions.
Online Lenders
Online lenders are the fastest to send you emergency loan funds. They may not even require your credit history to approve you for installment loans. However, such emergency loans may be expensive and have short terms.
If the online lender reviews your credit history, you need to make sure you qualify for a minimum credit score. Otherwise, you will be rejected for the unsecured loan.
Credit Unions
These are financial institutions offering to fund their members. They can set their interest rates at 18%, and if you have good relationships with your local credit union, you can apply with them.
Credit unions will review your credit history, income, and debts to decide if you are eligible. Few of them have pre-qualifications available. You need to be sure a credit union is a good option before you apply with them.
Payday Lenders
Be careful with payday loans. They come with high interest rates. Bad credit score borrowers can receive 400% APR.
The loan terms for payday loans usually last two to four weeks, and you can get $100 to $1,000 loan amounts.
Apply for payday loans for bad credit only if there are no options left and you need money urgently. These are highly expensive emergency loans to take.
Comparing Emergency Loans for Bad Credit
To get the best emergency loans for bad credit, applicants need to compare many lenders before making a decision to submit an application.
Consider the following when looking for an emergency loan:
The Loan Cost
- The interest rates cause emergency loans to be expensive. If you have a high interest rate, it will accrue on your loan amount and make payments tougher. By the end of the loan term, you may overpay hundreds of dollars.
- Another cost to keep in mind is fees. Emergency loan lenders have all kinds of fees linked to the loan. To process and service the loan, there is an origination fee of 1% to 10%. For late payments, you will get a late penalty. For paying back early, there may be a prepayment fee. You might fall into debt if you have large fees to cover.
Repayment Terms
- When applying for a loan, you can usually choose the repayment plan. It does not work with payday loans and other short-term loans, but if you have a personal loan, the payments are usually required every month. You can opt for weekly, bi-weekly, or bi-monthly payments instead if you find it more suitable.
- Extensive loan terms may ensure your payments will be lower. However, you will pay more interest in the end. So, if you want lower payments, opt for longer loan life, and for lower interest payments, opt for a shorter term.
Funding Time
- Because emergency loans for bad credit must fund your urgent expenses, you might want to receive money quickly.
- Review the lenders' funding times before applying to ensure you will get money on time. Online lenders usually are the fastest to fund. They gave same-day funding or disburse money on one business day. Credit unions may take longer to approve but send money the same day with your approval.
To compare lenders and choose the best emergency loans for bad credit, it is convenient to use personal loans calculator. Input everything you know about the loan and see how much you will overpay.
Once you decide on the companies you want to apply for, pre-qualify to see what rates you personally qualify for.
How to Apply for Emergency Loans for Bad Credit
Pre-qualify
Many lenders have pre-qualifications available on their websites. You can pre-qualify with as many online lenders as you wish because the process does not hurt your credit score.
Pre-qualification requires a soft credit check. It means the lender will only look at the information you provided in your pre-qualification form. It is important to fill out the form correctly and state the real information. Pre-qualification does not ensure you will be approved, and it only allows you to see the terms you can get from a lender.
After you have been pre-qualified, you can eliminate some of the emergency loan lenders. Some offers may not be suitable for your financial needs. If the lender offers you too high interest rates or fees, you may not want to proceed with the application with them.
Gather Documents
If you decide to proceed with the application with some emergency loan offers, you will need to collect the necessary documents.
The documentation includes proof of your identity, address, income, and asset ownership. These are usually SSN, driver's license, W-2 forms, bank statements, and pay stubs. Your lender may have a different set of documentation to submit.
Submit an Application
Once you have prepared all the necessary documents, you can apply. The lenders have different application procedures, and with online lenders, you can go through the entire process from home.
You will need to upload your documents or bring them to the local branch of your lender. The lender will review the documentation along with a credit report. They will pull a hard credit check from credit bureaus. It will hurt your credit score and lower it, but if you manage to make on-time payments on your loan, you will improve your credit score quickly.
Apply with several lenders, at least three. It will allow you to get higher chances of approval. To not hurt your credit score greatly, submit the application within 14 days. They will be considered as one request for your credit report.
Receive Funding
After you have submitted your application, the lender may take a day or several to review it. Some lenders have instant approvals and will fund your loan the same day.
You will receive the funds in your bank account if you provide the lender with details of it. Fund your emergency expenses.
Depending on the type of your loan, you may require to start making payments 30 days after you receive funds. Payday lenders will require you to cover the loan amount in one payment by the end of the loan term.