Man leaning on broken down car with hood opened

What Is An Emergency Loan And How Can They Help Cover Unexpected Expenses

Scott Steinberg6-Minute Read

Share:

Emergency loans provide a form of financial relief in the wake of unexpected events and challenging circumstances. These loans are designed to help offer money to those in need when they most need it, especially for events that insurance won’t cover.

Note that emergency loans can often be obtained on short notice as they’re meant to help with unforeseen costs like dealing with damage due to storms and flooding. What’s more, there are many types of emergency personal loans available to those who find themselves facing sudden and unanticipated financial hardship.

Wondering how to get an emergency loan and what options are available to you? Here, we’ll walk you through how emergency loans work, some types of loans available and what it takes to obtain one.

What Is An Emergency Loan?

A form of short-term loan, emergency loans are specifically crafted to help you cover any expenses that you encounter in the unfortunate event that an emergency (like a natural disaster) unexpectedly arises. After all, emergencies tend to pop up when you least expect them to and frequently come with significant expenses attached.

Damage to your roof due to an electrical storm. Problems in your basement caused by flooding. Unforeseen medical bills, car repairs, or costs incurred because of a tree that’s fallen in the wake of a windstorm and impacted your residence. All are types of sample expenses to which funds provided by an emergency loan can be applied.

Having access to an emergency personal loan can be a great source of financial relief, especially as it’s not always easy to come up with spare cash when disaster strikes. Perhaps doubly so when you consider that most American households don’t have an emergency fund on hand, or enough of a financial cushion in their paychecks to handle unanticipated events.

An emergency loan is typically structured in the form of an unsecured personal loan. Obtain one, and you’ll borrow funds that can be applied to offset expenses incurred due to damage or costs encountered due to unforeseen events.

Loan amounts can be small or large (ranging from under $1,000 on up to $100,000), with funding supplied on quick turnaround (generally within 1-3 business days of approval). Select loan providers may even be able to offer same-day funding if you should find yourself in an extreme pinch.

On the bright side, emergency loans are generally unsecured, meaning that you don’t have to secure them with your property or personal assets. Double check with your lender that they don’t require collateral for their short term loans.

Note that interest rates and specifics also vary by individual lender. As a result, before picking a provider to go with, you’ll want to do some research as well as compare offers to see which makes the most sense.

Factors to consider include how large of a loan the lender is willing to extend, any fees that might be charged and loan program credit score or income requirements. Bearing in mind that no two loan offers will be the same, you may be able to enjoy significant cost savings just by doing a little up-front comparison.

Alternate forms of emergency funding are also available, such as payday loans or advances on your credit card, all of which come with different terms and conditions attached.

Generally, payday loans tend to come with short terms attached – some as brief as 7- to 14-day periods. It’s common for them to be extended to those who may lack a strong credit score or credit history. Because of this though, you can expect payday loans to come with high interest rates and fees attached.

Types Of Emergency Loans

Following a major natural disaster or other emergency, you may find yourself in need of an influx of cash to help pay for expenses. Several types of emergency loans are available that can provide additional funding in your time of need.

While all are crafted with an eye toward offering money on short notice to borrowers who could use a helping hand, each comes with its own pros and cons attached. Please explore your local, state, and federal government aid options for additional aid not listed here.

Emergency Personal Loan

An emergency personal loan is typically offered in the form of an unsecured loan. It provides you with access to a set amount of money without the need to put up any assets as collateral. Loan terms can range from a few months to several years. Any sums borrowed are paid back in fixed installments (monthly) throughout the lifetime of the loan.

Money obtained via an emergency personal loan can be put towards a wide range of purposes, allowing you to address a broad spectrum of emergency expenses. In other words: You’re largely unrestricted in how you choose to apply any sums lent, making emergency personal loans a helpful tool for handling a wide array of disasters.

Sample expenses that you can put an emergency loan towards paying off include:

  • Damage or repairs
  • Medical bills
  • Rent and mortgage payments
  • Utilities
  • Miscellaneous home expenses

When applying for an emergency personal loan, your credit score and history will impact your eligibility, interest rate and how much you can borrow.

Payday Loans

Payday loans are structured as low-sum, high-interest loans with a short-term horizon that are repaid from your next paycheck. Loan providers generally do not require a credit check, as payday loans are designed to offer easy approval for all applicants.

Because payday loans strive to provide money in small amounts (say, up to $500) on a quick turnaround, interest rates can be considerable, often upwards of 300%. You’ll also be required to pay off your loan balance by the time you next receive payment from your employer. As a result, it’s wise to save this option for only the tightest of times. 

Alternatives To Emergency Loans 

Of course, if you find yourself in need of disaster relief, you don’t need to apply for and secure an emergency loan. In fact, many alternatives to emergency loans can also provide rapid access to cash if you find yourself facing a financial setback.

Home Equity Line Of Credit

A home equity line of credit (HELOC) allows you to borrow against your current home equity and repay this money over an extended period. It’s a financial product that’s offered in the form of a revolving credit account.

By allowing borrowers to tap into a credit line up to a preset limit, it presents a helpful source of emergency relief funding if a disaster or other emergency strikes. 

Home Equity Loan

By way of contrast, a home equity loan is a fixed-term loan secured by a borrower’s home and typically takes the form of a second mortgage. Apply for a set amount of funds, and if your request is granted by a financial institution, you’ll receive that amount in the form of an upfront lump sum payment. This payment comes with a fixed interest rate and schedule of payments that applies over the life of the loan.

This fixed-term loan is presented to you by the lender based on the equity in your home (the amount of value in your home that you enjoy which exceeds the current outstanding loan balance). Funds obtained through a home equity loan can also be used to offset expenses incurred due to natural disasters and other unexpected events. 

Credit Card Advance

Credit card owners can often borrow cash against their credit balance. If you choose to obtain a cash advance from your credit card provider though, be advised: Interest rates on these advances are often higher than the APR that is charged on standard purchases.

In addition, interest rates begin to accrue when monies are taken out and additional fees (like transaction and processing fees) may also be incurred.

Alternatives To Emergency Loans

Of course, if you find yourself in need of disaster relief, you don’t need to apply for and secure an emergency loan. In fact, many alternatives to emergency loans can also provide rapid access to cash if you find yourself facing a financial setback.

Home Equity Line Of Credit

A home equity line of credit (HELOC) allows you to borrow against your current home equity and repay this money over an extended period. It’s a financial product that’s offered in the form of a revolving credit account.

By allowing borrowers to tap into a credit line up to a preset limit, it presents a helpful source of emergency relief funding if a disaster or other emergency strikes.

Home Equity Loan

By way of contrast, a home equity loan is a fixed-term loan secured by a borrower’s home and typically takes the form of a second mortgage. Apply for a set amount of funds, and if your request is granted by a financial institution, you’ll receive that amount in the form of an upfront lump sum payment. This payment comes with a fixed interest rate and schedule of payments that applies over the life of the loan.

This fixed-term loan is presented to you by the lender based on the equity in your home (the amount of value in your home that you enjoy which exceeds the current outstanding loan balance). Funds obtained through a home equity loan can also be used to offset expenses incurred due to natural disasters and other unexpected events. 

Credit Card Advance

Credit card owners can often borrow cash against their credit balance. If you choose to obtain a cash advance from your credit card provider though, be advised: Interest rates on these advances are often higher than the APR that is charged on standard purchases.

In addition, interest rates begin to accrue when monies are taken out and additional fees (like transaction and processing fees) may also be incurred.

How To Get An Emergency Loan

Wondering how to get an emergency loan? The process is relatively straightforward. And it helps to know that you can obtain an emergency loan from a variety of lending providers, like traditional banks, credit unions and online lenders. Loan amounts and terms will vary by individual lender.

You’ll want to start by figuring out your credit score and financial situation. This will determine how much money you’ll be able to obtain and the terms under which these sums will be lent to you.

Next, you’ll want to consider what type of loan you’ll seek, factoring in variables such as how much money the loan type can provide, how quickly, and what interest rates or fees may be attached.

Following these steps, you’ll wish to gather necessary documentation (ID, proof of income and employment, Social Security number, etc.) and review various lenders. As you set about considering potential partners, it helps to review three to six possible options to compare rates and terms.

Once you have determined what lender and type of loan type is right for you, you can submit an application. Your lender will then review and approve or deny the application, generally a quick-turn process which can even in some cases happen on the same day that you apply.

The Bottom Line

Emergency personal loans, natural disaster relief loans, and other forms of financial borrowing offer a helpful way to get out of a rough spot if you’ve suffered unexpected damage or expenses.

Many of these solutions also offer borrowers rapid access to money with a minimum of upfront paperwork and requirements, and many offer terms designed to help you quickly get back up on your feet.

No two lenders offer the same loan terms and conditions though, and some emergency relief loans can come with high interest rates and fees attached. Keeping this in mind, when weighing which loan type and lender to choose, you’ll want to shop around.

Looking for more information on personal loans, how they work, and how you can apply them to aid with disaster relief or unexpected events? Be sure to check out the Rocket Loans Learning Center for more information.

Table of Contents

    Scott Steinberg

    Hailed as The Master of Innovation by Fortune magazine, and World’s Leading Business Strategist, award-winning professional speaker Scott Steinberg is among today’s best-known trends experts and futurists. He’s the bestselling author of 14 books including Make Change Work for You and FAST >> FORWARD.