There are 4 types of emergency loans

An emergency loan is a great option if you don’t have enough money or money in your savings account to pay for an unexpected expense. Many types of emergency loans are available to provide quick cash access. Some loans have flexible repayment terms, which allow for lower monthly payments.

Not all emergency loans are created equally. Some offer lower interest rates to qualified applicants while others can offer interest rates up to 400%. Find out more about these common emergency loans and other alternatives here:

There are 4 types of emergency loans

1. Personal

Lenders such as banks and credit unions offer personal loans. Personal loans are lump-sum loans that you repay in monthly installments. You also have to pay interest and fees in addition to the principal amount.

A personal loan allows you to repay large amounts over a longer time period. Lenders will vary in terms of repayment terms, but they can be as short or long as seven years for qualified borrowers.

Another benefit is the speed at which you can get financing – many lenders can issue loan funds within one business day.

A major problem is that you might have to pay an annual percentage rate (interest plus fee) if your credit score is not perfect. Some lenders allow you to get an APR of up to 30%.

Who is it for? Borrowers looking for lower interest rates than credit cards and higher borrowing limits without collateral.

Advantages The inconvenient
  • A warranty is not usually required
  • Flexible repayment terms are offered by some lenders
  • Bad credit may make it difficult to qualify for a personal loan.

2. Cash advances via credit card

When used responsibly, credit cards can be very useful in times of emergency. A cash advance feature is a feature on many credit cards that allows you to access cash at an ATM or branch. You can only borrow a certain amount or a percentage of your limit.

Cash advances on credit cards have higher interest rates than your variable APR card. The cash advance is not subject to additional credit checks because it is tied to your credit limit.

It is best for: Cardholders with active credit cards and who need small amounts of money. Existing cardholders who might not be eligible for a new line may also consider this option.

Advantages The inconvenient

3. Payday loans

Payday loans allow you to borrow a small amount, usually a few hundred dollars. These types of emergency loans have a very short repayment term. Often, they are paid back within two weeks or less.

Because of the high-interest rates, this type of emergency loan can be considered predatory. The Consumer Financial Protection Bureau states that payday loans can charge up to 400% interest.

Who is it for? Borrowers who only need small amounts of money but can repay the loan completely in a short time. Payday loans should not be taken. Instead, consider alternative loan options.

Advantages The inconvenient
  • It is easy to get approved since lenders don’t require credit checks

4. Securities lending

The title loan is another type of emergency loan. These secured loans use your vehicle’s title as collateral. The lender may repossess your vehicle to pay off the outstanding debt if you fail to repay the loan within the 30-day loan term.

Title loans are a way to get a short-term loan that you can use your car for. They also have high-interest rates, similar to payday loans rates. Title loans can have interest rates up to 300%, according to the Federal Trade Commission.

Who is it right for? Consumers can borrow small amounts but pay their loans back in a matter of months. Title loans are an option for those who don’t have the funds to pay off other emergency loans. However, it should only be considered as a last resort.

Advantages The inconvenient
  • If you fail to pay the loan, a lender may take your vehicle.

Which emergency loan should you apply for?

Personal loans are the cheapest of the four types mentioned above.

While your credit history will determine the interest rate, personal loans have a lower interest rate than payday or title loans. The average personal loan rate currently ranges from 3 percent to 36%; as of September 8, 2021, it is 10.46%.

Consider emergency loans if an unsecured personal loan is not possible.

Alternatives to Emergency Loans

1. Home Equity Loan (HELOC) or Home Equity Line of Credit

You may be eligible to receive a Home Equity Loan or Home Equity line of credit (HELOC) if you have enough equity in your home. You may be eligible to borrow thousands of dollars depending on how much equity you have in your home and the amount you have remaining on your first mortgage.

A home equity loan offers lump-sum financing with a fixed interest rate and repayment terms of up to 30 years. HELOCs are revolving credit lines that allow you to withdraw funds for a set term (say 10 years) and then repay it over 20 years.

Both types of loans are secured by your home, and you risk losing it if the loan is not repaid.

Who is it for? Homeowners need large loans to cover necessary expenses like home renovations, repairs, or school fees.

Advantages The inconvenient
  • The average rate for home equity loans is generally lower than the average rate for personal loans or credit cards.
  • Some equity is required in your home
  • If you fail to pay the loan, the lender may take possession of your home

2. Payment plans

A payment plan can be an option for an emergency loan if you have an urgent need for money due to an unexpected bill. Let’s take, for example, a large medical bill you are unable to pay directly. It is possible to negotiate a payment plan with your vendor’s accounting or billing department.

Who it is best for People who are able to pay large expenses and have the ability to make smaller monthly payments with longer repayment terms. This option is great because it keeps you from getting into further debt.

Advantages The inconvenient
  • Some payment plans offer interest-free periods
  • There may be interest and fees.

3. Advances on payday

Payday advances are also known as payday advances by some employers. These advances can be obtained through the company’s human resource department. Payday advances are a way to get funds from your future income. The laws in your state and your employer may allow you to deduct the loan from your paychecks automatically.

This benefit may be offered by your employer. They might have restrictions on the amount and frequency of payday advances.

Who is it for? Individuals who require short-term, small loans and who work for companies that offer this option.

Advantages The inconvenient
  • Some employers offer salary increases that are interest-free
  • Employers may not offer this option

4. Refer a friend or family member

Borrowing money from family members or friends can be difficult. It is an option that can help you pay unexpected bills. Talk to a friend or family member who is willing to lend you an emergency loan to discuss repayment expectations.

Talk with them about whether they prefer to receive a lump-sum payment or if they are willing to make monthly installments. If they prefer installment payments, how long will they be willing to wait before they pay the entire loan? You should also ask them if interest is included in the principal.

Who’s it for? Those with strong relationships with friends and family who are willing to help.

Advantages The inconvenience
  • You may be charged little to no interest by a family member
  • A default on a loan could endanger your relationship with the lender

Next steps

If you can’t repay the emergency loan, it is possible to go into even more debt in order to cover a sudden expense. Before you decide which emergency loans are best for your needs, make sure to consider whether you can save money for the cost.

You can save if you don’t have the funds to pay it back.

About Jun Quentin

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