Emergency Loans: What They Are And How To Get Them
Scott Steinberg8 minute read
May 11, 2022
Following a major natural disaster or other emergency, you may find yourself needing an influx of cash to help pay for expenses. Several types of emergency loans can provide additional funding in your time of need.
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?
An emergency loan is a short-term advance on money intended for people who are in urgent financial situations and need immediate funds. Loans of this type typically have short repayment periods and come with varying interest rates that depend largely on the lender.
Having access to an emergency personal loan can be a great source of financial relief, especially since it's not always easy to come up with spare cash in such a situation. In fact, most American households don't have an emergency fund or enough of a financial cushion in their paychecks to handle unanticipated events.
Loan amounts can be small or large, generally ranging from $1,000 up to $100,000, with funding supplied on quick turnaround (generally within 1 – 7 business days of approval). Select loan providers may even be able to offer same-day funding if you findyourself in an extreme pinch. Rocket LoansSM, for example, can offer same-day funding to certain applicants.*
Emergency loans are generally unsecured, meaning that you don't have to secure them with collateral like your property or personal assets. Double check with your lender to ensure it doesn’t require collateral for short-term loans.
When comparing offers, consider factors like how large of a loan the lender is willing to extend, any fees the lender might charge,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 upfront comparison.
Types Of Loans For An Emergency
You may have several options for emergency loans, depending on your situation. Let’s take a look at the types of loans available and which one might work best for you.
Emergency Personal Loans
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. You will pay back any sum borrowed in fixed monthly payments throughout the lifetime of the loan.
Money that you obtain through an emergency personal loan can go toward a wide range of purposes, allowing you to address a broad spectrum of emergency expenses.
Sample expenses that you can help pay off with an emergency loan include:
- Property damage or repairs
- Medical bills
- Rent and mortgage payments
- Miscellaneous home expenses
When applying for a personal loan, your credit score and credit history will impact your eligibility, interest rate and how much you can borrow.
Payday loans are structured as low-sum, high-interest loans with a short-term repayment period, as they are repaid from your next paycheck. Loan providers generally don’t require a credit check since 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, expect high interest rates, often with an annual percentage rate (APR) of nearly 400%. You'll also be required to pay off your loan balance by the time you receive your next payment from your employer, or you’ll incur significant rollover fees. As a result, it's wise to save this option for only the tightest of times.
Title loans are also short-term loans that you can take out in an emergency, the catch being that you must put your car or other vehicle up as collateral to secure it. Like with payday loans, fees and APR for this type of loan can run high – with a typical APR of about 300% – and a lender can take your car if you default on the loan. Turnaround is also fast, as a repayment period for the average title loan is only 15 – 30 days.
Credit Card Cash Advances
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 that interest rates on these advances are often higher than the APR charged on standard purchases.
In addition, interest rates begin to accrue as soon as cash is taken out, and you may incur transaction and processing fees.
How To Get An Emergency Loan
You can secure an emergency loan from various lending providers, including traditional banks, credit unions and online lenders. Loan amounts and terms will vary by lender.
Follow these steps when looking for an emergency loan:
- Figure out your financial situation. You should start by determining your credit score and financial stability. This will dictate how much money you can obtain and the terms under which you’ll receive these sums.
- Consider what type of loan you need. Think about the type of loan you're seeking, factoring in variables such as how much money the loan type can provide, how quickly it’s available, and the interest rate and fees that may be attached.
- Get prequalified to compare lenders. To get prequalified, you'll want to gather necessary documentation (ID, proof of income and employment, Social Security number, etc.) and review various lenders. Prequalification typically requires a soft credit check, which won’t affect your credit score. It helps to review three to six possible options so you can compare rates and terms.
How To Choose The Best Emergency Loan
When shopping around for lenders, keep the following factors in mind to determine the right offer for you.
- Loan amounts: Emergency loans can only help you if you’re able to borrow the amount you need. A typical personal loan amount can range from $1,000 to $50,000 and sometimes more in special circumstances. Make sure the emergency loan you choose can cover your expenses.
- Funding time or speed: In an emergency, time is of the essence. You don’t want to be waiting weeks for approval if you need the money immediately. The length of time for a personal loan is typically only a few days, though some lenders can provide fast funding the day of.
- Interest rates and APR: Having a good interest rate can really affect the affordability of an emergency loan, and your rate depends mostly on your credit score and history. Shop around and compare multiple lenders to see who can offer you the best rates based on your situation.
- Repayment terms: Emergency loans tend to have shorter repayment periods, which typically mean higher monthly payments. Only take on a loan you know you can manage month-to-month or for the length of the term.
- Eligibility requirements: As your credit will largely affect your eligibility, rates and terms, apply for a loan that suits your financial situation. If you have a low credit score, seek out loan options that can work with that.
- Additional fees: Read your loan terms carefully. Most lenders charge origination fees as well as late or rollover penalties.
Once you’ve determined the right lender and loan type for you, you can submit an application. Your lender will then review and approve or deny the application.
Getting Emergency Loans With Bad Credit
Not everyone will have the credit score required to get the best rates for an emergency loan – personal loans typically require a credit score of at least 650 – but rather than turning to payday or title loans, consider these options to improve your chances of approval.
- Have a co-signer. If a friend or family member has good credit, ask them to be your co-signer on the loan. This can assure a lender that they’ll be repaid by at least one of you.
- Pledge collateral. Some lenders offer secured loans that you can borrow after putting up a personal asset as collateral. This can reduce your risk to a lender even if you have bad credit, though you can lose your collateral if you default on the loan.
- Borrow through a credit union. If you’re a member of a credit union, you could face more flexible qualification requirements if you borrow through that establishment. Talk with someone at your credit union about your emergency loan options.
If you’re not in an emergency situation, take some steps to improve your credit so that you can qualify for more preferable loan options.
Alternatives To Emergency Loans
Personal loans and the other options discussed above aren’t your only options in a financial emergency. Consider some of these alternatives.
Home Equity Line Of Credit
A home equity line of credit (HELOC) allows you to borrow against your home equity and repay this money over an extended period. It's a financial product 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. However, since you’re borrowing against your home’s equity, your lender can foreclose on your home if you fail to keep up with your payments.
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.
You can use funds obtained through a home equity loan to offset unexpected expenses resulting from natural disasters and other unfortunate events. As with a HELOC, though, your home is on the line if you default on the loan.
0% APR Credit Cards
Some credit card companies offer a 12 – 18 month introductory period when you sign up for a new card, and during this time you can make interest-free payments toward your balance. This can be useful if you’re able to repay your loan within that time frame, but any payments you make later will incur high interest charges.
If you have an emergency fund built up, this may be the time to use it. Don’t deplete the funds completely if you can help it, as you never know when another emergency may come up.
Borrow From Friends Or Family
If you want to avoid the loan approval process and have friends or family members who can help, consider asking them to lend you the cash you need. You can work out a repayment schedule and interest rate or just go by the honor system. Failing to repay them could strain your personal relationship, so make sure you can pay the amount back in full in a timely fashion.
Going through an emergency situation can be all the more stressful if you don’t have the funds to handle it. Explore your options for emergency loans and choose the one that works best for you and your situation, especially if your credit isn’t as high as it should ideally be.
Think a personal loan is your best bet in an emergency? Get started today with an online prequalification from Rocket Loans.
*Same day funding is available for clients completing the loan process and signing the Promissory Note by 1:00 p.m. ET on a business day. Also note, the ACH credit will be submitted to your bank the same business day. This may result in same day funding, but results may vary, and your bank may have rules that limit our ability to credit your account. We are not responsible for delays that may occur due to an incorrect routing number, an incorrect account number or errors of your financial institution.
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