The advantage of emergency loans is that you have access to quick cash when you are facing unexpected urgent costs. Many borrowers choose personal loans for emergencies, because of how easy it is to qualify and how quickly you can access funding.
They are convenient sources of funding, but they have drawbacks such as the fees and high fees for personal loans for bad credit. Emergency personal loans can become bound lifesavers, but they can also degrade your financial health if you rely on them without changing your spending or savings habits.
Common reasons to take out emergency loans
Getting an emergency loan may make sense. This is especially true when you pay cash in emergencies and run out of savings and are unable to pay basic bills such as rent, groceries, utilities, and more.
- Unexpected home repairs: A roof leak in the rainy season, a summer air conditioning failure, or a winter heater failure often requires repair costs, which can reach thousands of dollars. An emergency personal loan can cover some or all of the costs.
- Car repair: If you live somewhere without good public transport, a working car is absolutely necessary. Main car repairs can be expensive, and temporary transportation costs such as rental, Uber, Lyft etc. can be expensive. An emergency loan may bring you back to the road faster.
- Dental work: Unfortunately, even the best dental plans do not fully cover all types of dental work. Emergency crown or chipped teeth repairs can cost thousands of dollars and may require an emergency loan.
- Personal Tragedy: Some airlines offer bereavement fares, but the cost of flying a family across the country to attend a loved one’s funeral can be added. An emergency loan can give you more time to pay off your loan while you’re grieving your losses.
The advantages of emergency personal loans
Choosing a personal loan for an emergency has several benefits, including fast funding times and, if desired, fully online experience.
Fast funding
Most personal loan lenders will provide prompt approval on next day funding. Some lenders will provide same-day funding if you apply early enough that day. It will either take your car out of the store faster or pay your dentist to repair that missing tooth faster.
Simple qualifications
Most personal loans are unsecured debt. In other words, approval is primarily based on credit scores and income stability. This means that you need less paperwork and can be a welcome benefit in emergencies.
Stable fixed interest payments
Emergency loan interest rates are fixed, so you don’t have to worry about changing your fees like you would with a credit card. You will also know when you sign the final paper and the payment start and end date.
Longer repayment options
Having 1-7 years to pay off unplanned bills gives you more payment options. If you still recover from a medical emergency or miss work because your car is in the store, it can be a great relief.
Accessibility
You don’t need full credit to get emergency loan approval. You can qualify with a score as low as 300. The APR for a bad credit loan is the same as 36%, but it’s much cheaper than the 400% APR you’ll find on a payday loan.
Limited Credit Impact
Unlike credit cards, personal loans are installment loans, and retrieving one does not affect your credit usage. Credit utilization is based on how much of the total revolving credits used and does not take into account installment loans.
Cons of emergency personal loans
Despite the flexibility and quick funding times, emergency loans also have drawbacks to aware of before applying.
Fee
The lender may charge an origination fee despite being 12% of the loan amount. Some people appreciate early repayment penalties. Depending on the lender, you may also be liable for late fees, overdraft fees, and other charges.
There is no flexibility in paying
You cannot make a lower payment than what is stated in the loan agreement. If you choose a repayment period, you will be locked up until it is finished or until refinance.
High interest rate
If your credit score is very low, you can pay a higher interest rate than your credit card. Read the fine print: Some payday loan lenders may charge triple digit APR.
You need a stable income
Since most personal loans are unsecured, your income must be consistent for approval. If your seasonal, tipping, or fee income differs significantly, you will not be able to qualify.
Can be a halt to poor saving habits
Consumers often turn to emergency personal loans because they are not saving money from emergency funds. In fact, Bankrate’s emergency savings report found that 59% of US adults are uncomfortable with emergency savings.
It can lead to dependence on debt
The ease and speed of getting a personal loan makes it attractive to use them whenever money is tough. Debt should always be a last resort in emergencies.
Should I get an emergency loan?
Using a personal loan in an emergency is beneficial, but it is not right for everyone. Depending on your financial situation and the purpose of the loan, it might be a good idea to take out one.
If you need to avoid emergency loans
The last thing you want to do is borrow money you really don’t need at double digit average interest rates. There are a few scenarios that make no sense.
- It’s not necessary, it’s a desire: You may feel stressed and feel like you need to take an emergency trip out of town and decompression, but that is probably not necessary. Emergency loans should be booked for expenses that prevent you from working, eating, being healthy, or living a safe life.
- You’re going to switch jobs: Personal loans are approved based on how much money you make now. If you are planning to change your career or job, consider using a credit card instead of a personal loan. The minimum credit card payment option will result in lower payments while you are looking for a job or waiting for your first paycheck.
- You have an emergency fund: The purpose of the Emergency Fund is to take money that can be used in an emergency. This is ideal if you have the money available, as borrowing yourself will eliminate the origination fee or commitment to paying interest over time. Make sure you take steps to save and replenish your funds as soon as possible.
Emergency personal loan alternatives
Whether you’re turned down for an emergency personal loan due to credit issues or prefer to explore other options before applying, there are a few options to consider.
- Please use a credit card you already have. Existing credit cards will be the solution with Crunch if there are available credits. Pay your credits as quickly as possible to avoid lowering your credit score.
- Check out the Cash Advanced App: If you are eligible for the Cash Advanced App, you may be able to earn up to $750 worth of your next salary. Some of these apps are free or you can pay as much as possible according to the optional “chip” system. However, beware of the fees, especially if you need immediate funds, especially as additional fees apply.
- Borrow from friends or relatives: They reach out to friends and family and ask them to borrow the cash they need. They may be happy to help. Only borrow something you can afford to pay back comfortably. We also obtain written agreements to avoid confusion.
- Reach out to your local charity or nonprofit organization: Call 211 to inquire about locally available financial resources. Depending on where you live, you may be entitled to an interest-free loan or grant.
- Request a payment plan: Contractors, doctor’s offices, and auto repair shops may provide payment plans to help you repay large bills. Even if you don’t, it’s not painful to ask if you can accept a regular balance payment instead.
- Apply for a 0% APR credit card. If you have good or good credit, you may be eligible for a 0% APR credit card. These cards do not evaluate interest in purchasing during the 12-20 month implementation period.
- Get a pay advance: Research your employer’s policies and see if there is specific guidance on ensuring your progress is carried out. This can be a good option in emergencies, but like the Payroll Advanced App, you will have a shorter funding on the next payday.
Conclusion
Emergency loans are easy to apply, flexible and quick. Still, they have drawbacks that need to be considered when deciding whether they are appropriate, like higher costs. To get the best deal for your finances, shop with multiple lenders and get your qualifications in advance. Compare loan amounts, interest rates and terms to make informed decisions and select the right lender.
Most importantly, you’ll need to run the numbers to determine if an emergency loan works for your finances, or whether an alternative, such as a pay advancement, payment plans, or a loan from a friend or relative, is a better option.
