When you need access to funds quickly due to a sudden change to your finances, an emergency loan may🐼🍷 be a good option. Emergency loans are simply personal loans with quick funding, so you can get the money you need within days.
You can use the money from꧂ emergency loans for various unplanned expenses, but it’s important to know how to shop around an🍌d find the best option — even when time is of the essence.
- What are emergency loans?
- Where to find these loans
- Tips for comparing lenders
- What can you use an emergency loan for?
- How do you apply for this type of loan?
- How to get a loan with bad credit
- Alternatives to emergency loans
- Starting an emergency fund
What are emergency loans?
An emergency loan is a personal loan from a lender when you need funding quickly and don’t have an option to pull from savings or want to avoid using a credit card. The money can be used for almost any type of emergency, from a flooded basement to a sky-high ☂medical bill.
T💃hese loans are usually unsecured, which means you won’t have to put up any collateral (like a car) to secure the loan. However, you’ll want to pay a🔜ttention to interest rates, as some emergency loan lenders impose higher rates.
Lenders will review your credit as part of the application and approval process, but the exact requirements, such as your credit score and income, vary by lender. Some eligibility criteriaꦆ are stricter than others, but there are lenders who work with borrowers with bad credit or limited credit history.
If approved, you can generally expect funds within a week, although it’s possible to receive funds as soon as the next business day, depending on the lender. Same-day loans are more rare.
| Keep in mind: Payday loans might seem like a good emergency loan option because they can get you money fast, but it’s best to avoid them. They can have annual percentage rates (APRs) of nearly 400%. |
Where to find emergency loans
You have a number of lending options when it comes to emergency𝕴 loans. Each lender will typically review your credit score, verify your income, and determine how likely you are to repay the loan. Many lenders offer funding within days, which makes them an ideal option for an emergency situation. If you have good or excellent credit, yꦯou’ll find the most options and the lowest interest rates.
Here are a few places you can find emergenc꧋y loans:
Online lenders
Online lenders are a convenient choice if you prefer to conduct🌊 the entire application process online. Many of these companies ca♔n provide funding within a business day or two once you’re approved.
You can generally compare interest rate and term options fﷺrom various lenders without affecting your credit. Once you’ve compared at least three lenders, submit an application for the loan that’s the best fit.
It’s a good 🧸idea to consider an online lender’s reputation. Check reviews online, make sure the lender’s website is secure, and test its customer service.
Banks
If you have an existing relationship with a brick-and-mortar bank, you may turn to them for an emergency loan, particularly if they offer loyalty or other discounts. Most banks offer online applications and quick lending decisions too, similar to online lenders. However, banks might not offer the fastest funding times in the market.
Credit unions
Credit unions are another lending option for emergency loans, and they mไay even work with applicants with fair or ba🅺d credit. Many credit unions have brick-and-mortar locations too, which may appeal to you from a customer service standpoint.
While credit unions also offer online applications and quick fundinꦉg, you must meet membership requirements. Some credit unions allow you to apply for a loan without being a member, but you typi𒈔cally must become a member to accept the loan.
Tips for comparing emergency loan lenders
Looking for an emergency loan indicates that you need funds fast, but taking the time to compare emergency loan lenders can help ensure you receive the best terms for your financial 💖situation.
Consider the following factors when comparing lend🌱ers:
- Eligibility requirements: Look into each lender’s credit score and income requirements before applying to find out your chances of approval. Keep in mind that credit unions may have their own membership requirements for emergency loans.
- Interest rates: Your credit score largely determines the interest rate you qualify for. A loan’s interest rate is a factor you’ll want to pay close attention to, since it determines the overall loan cost. If your credit score is low, it may be wise to work on improving it before applying for a personal loan. In addition to the interest rate, consider any fees a lender charges. You may run into origination fees (the cost of processing your loan application) or prepayment penalties (for paying the loan off early).
- Loan amounts: Consider the minimum and maximum loan amounts you can secure. Some lenders may not have low enough minimums if you only need a small loan, and some may not offer high enough loan amounts to cover your expenses.
- Repayment terms: Confirm how long you’ll have to repay the amount. Personal loans typically have repayment terms between one and five years, though some lenders offer longer terms. Keep in mind that while a longer term will have lower monthly payments, it’ll also cost you more in interest over time.
- Time to fund: When you’ll actually receive the loan funds depends on the lender, with online lenders typically offering faster fund times. Funding times can range from the next business day to a week. Be sure to confirm the funding time with your lender, since you likely need the money sooner in an emergency.
- Online services: Consider whether the lender offers a convenient online application process for you, as well as customer service options that fit your communication preferences.
What can you use an emergency loan for?
You can use an emergency loan for almost any type of situation or crisis sit🐻uation, such as:
- Unexpected medical bills
- Dental financing
- Rent or mortgage to avoid foreclosure
- Utilities (if your water, power, or heating source will be shut off)
- Funeral expenses
- Unexpected car repairs
- Immediate home repair needs
While you can use these funds for virtually anything, check if the lender has any 🎀limitations. If you need immediate help paying for higher education, for example, you’re better off researching emergency student loans.
How do you apply for an emergency loan?
You’ll generally need to follow👍 these steps to get✤ a personal loan, although the process may vary by lender:
- Check your credit score before you apply. Understanding your credit score helps you narrow down your available lending options. You can check your credit report for free weekly through the end of 2023 with AnnualCreditReport.com, and monitor your credit score via the national credit bureaus (Equifax, Experian and TransUnion), your bank or other financial institution, or third-party tools like Mint..
- Determine how much you need. You only want to borrow what you need — and can realistically afford to repay. This way, you’ll avoid paying additional interest and fees. After all, the more you borrow, the more your loan costs.
- Compare lenders. It’s a good idea to shop around with at least three lenders. Prioritize emergency loan lenders that allow you to prequalify — that is, confirm eligibility and check rates via a soft credit check that won’t ding your credit. Find a lender with the most competitive interest rates, repayment terms, and customer service options for your needs.
- Complete the application and wait for approval. After you choose a lender based on your research, fill out a formal application either online or in person. You could receive your loan funds as soon as the next day after approval. You’ll likely need to have your supporting documentation, such as pay stubs, ready when you apply.
How to get an emergency loan with bad credit
Having bad or no credit makes it harder to get approved for emergency loans, but it’s not impossible. It would likely mean y🉐ou’re subject to higher interest rates, since the lowest rates are reserved for borrowers with higher credit scores. If you do have bad or limited credit history, keep the following in mind:
- A credit union may offer lower interest rates and be willing to work with borrowers with bad or no credit if you have a relationship established.
- You can find online lenders that specialize in working with borrowers who have less-than-perfect credit.
- A secured personal loan may be an option. With a secured loan, you put up collateral (such as a vehicle) to help you get loan approval. Just keep in mind that the lender can seize that collateral if you’re unable to repay the loan.
- Using a cosigner or co-borrower for the loan is another option. A cosigner is someone who’s willing to be responsible for the loan repayment if you’re unable to make payments, while a co-borrower would be your equal for all intents and purposes. Be cautious when adding a co-applicant — if you don’t make payments, you could damage their credit and potentially your relationship.
Alternatives to emergency loans
Emergency loans aren’t your only option. You may want to consider other lending options, such as:
- 0% APR credit card: Some credit cards offer a 0% APR promotion for a certain period (typically up to 18 months), which may be just long enough for you to cover your emergency expense and avoid costly interest. However, if you don’t repay the borrowed amount within that promotional period, you’ll have to pay the regular interest rate, which can be high.
- Credit card advance: If you have a credit card, it’s possible to receive a cash advance against your line of credit. In this situation, the money you borrow gets added to your credit card balance. Keep in mind that the interest rates are higher for a cash advance, it can come with more fees, and interest starts accruing on day one.
- Home equity line of credit (HELOC): If you’re a homeowner, you may want to consider a HELOC. With a HELOC, you borrow against the equity in your home. You can generally borrow as much as 85% of your home’s value, minus the amount you owe on it.
It functions similarly to a credit card, in that you have a revolving line of credit that replenishes as you pay it off. You’ll have a long draw period (usually 10 years), so you can borrow from it as needed. A downside of this option is that it uses your home as collateral, so you risk losing it if you can’t repay what you owe.
Starting an emergency fund
Financial emergencies cause major stress, not only on your wallet, but on your peace of mind. One way to avoid struggling with financial emergencies is to work on building up an emergency fund (si🍬milar to “rainy day fund”).
A🦋n emergency fund is money you 🔯set aside strictly for emergencies, but is easily accessible. This way you can use your emergency savings rather than turning to loans or credit cards.
Starting a fund may feel overwhelming at first, but by focusing on the following steps, you can build up your emergency fund faster than y🔴ou think:
- Understand your expenses. Know where your money is going each month and how much is coming in.
- Create a budget. Once you start tracking your expenses, you can create various buckets for spending and saving. Think about how much you can afford to stash for emergencies. Setting aside even a small amount of money each month can make a big difference over time.
- Consider opening a high-yield savings account. A high-yield savings account is a great option for emergency funds because you can access it easily (often online) and connect it to your bank account, all while earning more interest than you would with a regular savings account.
- Make regular contributions to your emergency fund (even if they’re small). You can set up regular transfers from each paycheck or deposit and eventually increase the amount as you’re able.