What Are Emergency Loans?

Finance

An emergency loan is an unsecured personal loan that you can borrow to cover the costs of unexpected expenses. The amount you borrow will vary based on how much you need to cover costs, but emergency loans tend to be relatively small—between $250 and $1,000. They are usually quick, with deposits coming within a day or two of when you get approved for a loan. Some lenders can even fund loans on the day you apply.

Because emergency loans are generally unsecured, you likely won’t need to put up any collateral to get one. However, some lenders offer secured personal loans that require borrowers to put up assets—like home equity and savings account funds—to borrow money. You also can obtain emergency loans through payday loans and credit card advances, but we recommend avoiding these options where possible.

Personal loan standards vary by lender, so you’ll need to evaluate each option on a case-by-case basis. When comparing lenders, consider how much you can borrow, fees and minimum credit score and income requirements.

As a type of personal loan, you can use Emergency loans  for almost anything, like:

Medical bills. If you’ve been to the emergency room or had an unexpected medical expense, an emergency loan can cover those costs.

Rent and mortgage payments. If your home payment is due soon and you don’t have the cash to pay on-time, an emergency loan can tide you over until you get paid again.

Utilities. Keep the lights on and make sure your phone doesn’t get shut off by using an emergency loan to pay utility bills on time. Staying current on your bills ensures you don’t fall behind on expenses and reduces the likelihood of a drop in credit score.

Funeral expenses. If a loved one passed away and didn’t provide for funeral costs or other end-of-life expenses, you may need to take out an emergency loan.

Home or car repairs. While you might find a better interest rate and terms with a home equity line of credit (HELOC) or home equity loan, some home repairs need immediate attention (and payment). Likewise, auto repairs have a tendency to pop up at the most inopportune times. If you need to fix your car or finance home repairs—and can’t afford to wait—an emergency loan can cover these costs, too.

Some personal loan lenders have restrictions on how you can use emergency loans. For instance, you might not get to use them to pay for postsecondary education costs. Review the terms and limitations of your potential lender before completing an application.

Types of Emergency Loans

Emergency loans can come in a few different forms, including:

Personal loans. You can get an unsecured personal loan, which uses your credit score and history to determine eligibility, interest rate and the amount you can borrow. Some lenders also offer secured personal loans that are collateralized by personal assets like cars, investments and real estate.

Payday loans. Payday loans are low-amount, high-interest loans. They don’t typically require a credit check, but have a fast turnaround, usually requiring repayment by your next payday. These loans are usually $500 or less and APRs can be as high as 400%. If possible, we recommend avoiding this option.

Title loans. A title loan is when you hand over the title to your vehicle, like your car, in exchange for cash. If you don’t repay the loan, your lender can keep your vehicle.

Credit card advances. If you have a credit card, you can borrow cash through your available credit balance. Interest rates for credit card cash advances tend to be higher than APR for regular purchases, and you can expect fees on top of that (for instance, transaction and processing fees). Interest starts accruing when you take money out—there’s no grace period—and will increase how much you need to pay back.

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