If you need money fast for unexpected expenses, such as an urgent car repair or funeral, and you don’t have time to go through a bank’s application process, you may consider getting an emergency loan.
An emergency loan is a type of financing you can get on short notice. Funds are often directly deposited into your bank account within a day or two. But this convenience comes with drawbacks, including high-interest rates. If you have no other choice, though, it's essential to understand how they work to ensure a smooth financial future.
Best loans for emergencies
Borrowers can find fast funding through several types of emergency loans. Each has different qualification requirements, as well as pros and cons.
Unsecured Personal Loans
Some lenders can provide you with immediate access to the funds. To find out which personal loan rates you qualify for, insert your desired loan amount into Credible's free online tool and discover your potential savings within minutes.
Personal loans usually have longer terms with repayment done in monthly increments that can be easier to manage. And if your credit is healthy, you may be able to qualify for a $100,000 personal loan.
Keep in mind, lenders check your credit history before you can qualify for a personal loan. And even though the terms can be better than other emergency loans, personal loans may still come with high interest. Rates vary between 6 and 36 percent, depending on your credit score and financial history.
Not sure how much you need to borrow? Use this personal loan calculator for a quick estimate.
Credit Card Cash Advances
Taking a cash advance on your credit card is like taking out a short term loan against your available balance. You can get the money immediately, which can be helpful if you need the funds quickly. If you already have a credit card, you won't need to apply, which can be useful if you need money due to a job loss.
Credit card companies typically charge a higher interest rate for cash advances than they do for purchases. Some charge a processing fee. Also, interest will start to accrue as soon as you receive the money. If your interest rate is high, this could quickly add up.
A payday loan is a short term loan you take out against your future income. This type of loan typically must be paid back by the time you get your next paycheck. This type of loan is easily accessible, and some lenders provide immediate lending decisions and cash within 24 hours. Payday loan lenders also don’t check your credit score.
Payday loans have an average interest rate of 400 percent, however, making them the most expensive form of financing. And unlike most loans that have monthly installments, payday loans are due all at once. This arrangement can lead to a cycle of borrowing, taking out another payday loan to pay off the previous one. According to the Consumer Financial Protection Bureau, four out of five payday loans are re-borrowed within a month, creating a debt trap.
A pawnshop will provide you with a short term loan, holding onto an item you own as collateral. If you can’t repay the loan, the pawnshop keeps your asset. Two of the benefits to this type of loan is that pawnshops don't do credit checks and you can get your money immediately.
Since a pawnshop loan is a short term, there is a chance you won't be able to repay the debt, and you'll lose your item. Also, interest rates are usually high, with an annual percentage rate (APR) between 15 and 240 percent. If you need a large amount, this type of loan may not be sufficient. The average pawnshop loan is $150, according to the National Pawnbrokers Association.
If you own a car, you can borrow money against the title. With this short term loan, you can usually get cash within a few days. Lenders don't do credit checks, and you can still keep your car and drive it during the period of the loan.
Title loans often charge high-interest rates, with an average APR of 300 percent. If you don't pay the balance, the lender can seize your car. And in some cases, if the title lender repossesses your car and isn't able to sell it and recoup your loan balance, you could owe the difference on top of your payments.
How can I get an emergency loan?
When choosing loans for emergencies, consider how quickly you need the money. While most of these options provide emergency cash quick, some offer immediate access. You'll also want to compare the costs. Some lenders may charge fees. And you’ll want to consider the interest and how it adds up over time. Look for the lowest interest rate, and make sure you have the means to repay the loan before you take it out.
Also, consider the reputation of the lender. Some can be regarded as predatory, especially if the terms they set make it unlikely that you’ll be able to meet them.
Can you get an emergency loan with bad credit?
Yes, but you will almost always pay a high-interest rate. Payday and title loan lenders don't check a borrower's credit, but they also charge very high interest as well as additional financing charges. Quick access to money may end up hurting you and your bank in the long term.
The best thing to do is to build an emergency fund once your current emergency fund passes. Living paycheck to paycheck can be dangerous, but once you break the cycle and set aside money for unplanned situations, you won’t have to worry about getting an emergency loan.