What Are Emergency Loans? How to Get One

An emergency loan is a short-term personal loan that provides quick access to cash – usually within one to two business days – to cover urgent, unexpected expenses. These loans typically range from $1,000 to $60,000 and are designed for financial emergencies like medical bills, car repairs, or home maintenance issues rather than planned purchases.

Most emergency loans are unsecured, meaning you don’t need to provide collateral like a car or house. The application process is usually fast because these loans are designed for speed – just check the interest rates and terms to ensure they fit your budget.

Not all emergency loans are the same. Some come with lower interest rates for applicants with good credit scores, while others carry very high rates. The main types include personal loans, payday loans, and credit card cash advances.

There are different types of emergency loans available. Before taking one out, it’s a good idea to understand how each works and the terms that come along with them.

Personal loans

A personal loan can act as a type of emergency loan that allows you access to a certain amount of cash. Many personal loans are unsecured, but some lenders offer secured loans that are backed by collateral. These loans are usually offered by banks, credit unions, and online lenders.

Personal loans are a type of installment loan, meaning you pay them back monthly over a specific period of time. Your interest rate is based on your financial profile, especially your credit score, income, and debt-to-income ratio. Disbursement times range from the same day to multiple business days after you apply.

Payday loans

A payday loan is another type of installment loan used for emergencies with a very short term, usually only a couple of weeks to a month. Payday lenders advertise themselves as a good option for those with poor credit. These lenders give you money on the spot with the agreement that you’ll repay them with your next paycheck.

According to the Consumer Financial Protection Bureau, the lender sets the interest rate or fee you’ll pay, with some rates as high as 400%. The lender might also ask you to write a dated check for the full amount you owe. They’ll cash the check on that date, no matter how much money is in your account.

Payday loans can be highly predatory due to their high rates, hefty fees, and tendency to trap borrowers in a cycle of debt.

Credit card cash advances

If you already have a credit card, you can get funds quickly for an emergency with a cash advance. Many credit cards offer a cash advance feature that lets you access cash from an ATM or bank.

Credit card cash advances typically have higher interest rates than your card’s current annual percentage rate (APR). Since the cash advance is linked to your existing card’s credit limit, it doesn’t require an additional credit check.

This option could work for cardholders who already have active credit cards in good standing. However, it’s an expensive option due to high fees and no grace period (unlike with credit card purchases, interest starts accruing right away).

When you apply for an emergency loan, you’re asking a lender for a lump sum of cash to cover an immediate need. The process is designed to be faster than traditional loans because lenders know you need the money quickly.

Once you submit an application – often online – the lender reviews your credit, income, and debt. If approved, the lender deposits the funds directly into your bank account, sometimes as soon as the same day or one business day.

Repayment depends on the type of loan you choose. For personal installment loans, you’ll pay back the borrowed amount plus interest in fixed monthly payments over a year or longer. This predictable schedule can make budgeting easier compared to payday loans, which often require full repayment by your next paycheck.

You can use an emergency loan for just about anything, but the main purpose is to cover the costs of an actual emergency. You probably shouldn’t take one out for shopping or vacation.

Common uses include:

• Medical bills: Emergency room bills or an unexpected medical expense
• Rent or mortgage payments: Your rent or mortgage payment is due, and you don’t have the cash
• Utilities: Falling behind on monthly utility bills like electricity or Wi-Fi
• Funeral expenses: If a family member passes away and the funeral costs aren’t covered by insurance
• Home or car repairs: Repairs that need immediate attention, such as a new roof or tires for your car
• Job loss or a gap in income: When losing a job means you need help paying for living expenses
• Pet illness or surgery: Expensive vet bills, like if your pet needs emergency surger

Some emergency loan lenders have restrictions on how you can use the funds, so review the terms before filling out an application.

Consider the following when selecting an emergency loan – remember it’s always good to compare products before committing to anything.

• APRs: The annual percentage rate includes all fees and interest. Lower rates save you money, as interest can add up fast and double or triple what you originally borrowed.
• Repayment terms: Longer terms mean lower monthly payments but more interest over time. Shorter terms mean higher monthly bills but less total cost.
• Fees: Watch for origination fees and late payment fees, which get added on top of your loan amount.
• Funding time: Find out how quickly the lender can deposit money into your account, as timelines vary from the same day you apply to several days after.
• Credit requirements: Check what credit score and income requirements you need to meet before applying. Some lenders will let you apply with a cosigner if your own credit isn’t up to scratch.

Beware of predatory lending

You might overlook red flags in your rush to get cash when you’re in a tight spot. Watch out for these warning signs of predatory lenders:

• Guaranteed approval without a credit check
• Pressure to sign immediately
• Triple-digit interest rates or hidden fees
• Lack of transparency about total loan costs

Always check reviews and verify the lender is legitimate before sharing your personal information.

Applying for an emergency loan is similar to applying for any other type of credit. The specific steps depend on which loan type and lender you choose, but here’s the general process:

1. Organize your documents: You’ll likely need your ID, Social Security number, and proof of income or employment.
2. Compare lenders: Even though you need money fast, take time to compare rates and terms from multiple lenders so you can find the best deal.
3. See if you prequalify: Some online tools let you check rates from multiple lenders at once without impacting your credit report.
4. Fill out an application: Many lenders have quick online applications and give approval decisions the same day.

Banks

If you already use a brick-and-mortar bank, start there. Some banks offer special relationship discounts to existing customers, which can save you money on interest rates.

However, banks often have stricter credit score and income requirements than other lenders. They may also take longer to process your application.

Credit unions

If you use a credit union for your checking or savings accounts, you may be able to get an emergency loan there. Credit unions sometimes offer lower rates and more flexible terms than traditional banks. Keep in mind you might need to meet certain membership requirements before you can apply.

Online lenders

Online lenders tend to be the fastest when processing emergency loan applications and disbursing funds. You usually don’t have to be a member or current customer to borrow from an online lender. Just make sure you’re looking at a reputable company with a secure website before sharing your personal information.

Fintech companies

Fintech companies are starting to offer lending options for Americans with good credit scores. Their aim is to turn lending into a financial solution that helps short-term borrowers build credit while providing financial education.

If your credit isn’t great, borrowing options are more limited, but you’re not out of luck. You can still qualify for an emergency loan with bad credit, though you’ll likely face higher interest rates and fees.

Here are a few steps to improve your chances of qualifying:

1. Add a cosigner: Some lenders let you add a cosigner to boost your chances of qualifying. A cosigner is a friend or family member who agrees to repay the loan if you don’t. If your cosigner has good credit, they could help make up for your poor score. Your cosigner’s credit will be impacted by how you repay the loan.
2. Use collateral: Some lenders offer secured options where you can offer something of value like real estate or investments to offset the lender’s risk. However, if you don’t repay, the lender can take your collateral permanently.
3. Apply with a credit union: Credit unions are sometimes more flexible than traditional banks. Check with your local credit union about options for those with lower credit scores.

Dealing with an emergency expense is stressful, especially when you don’t have cash on hand. If you need an emergency loan, take time to compare offers and find the lowest interest rate possible.

Start building an emergency fund once you’ve handled your current emergency.