There are 8 types of emergency loans
Lenders such as banks and credit unions offer personal emergency loans. Personal loans are a way to borrow funds in a lump sum and then repay it over a monthly payment. You also have to repay the principal amount borrowed. In addition, interest and fees are payable.
A personal loan allows you to repay a larger amount over a longer time period. Lenders can offer different repayment terms, but they are usually as short as one year for qualified borrowers or as long at seven years.
Another benefit is the speed of funding – some lenders can approve your loan funds in as little as one day.
A major drawback is that you might have to pay interest plus fees if your credit score is not stellar. There are some lenders that charge origination fees or have maximum APRs higher than 30 percent.
This is the best option for: Borrowers who are looking for lower interest rates and higher borrowing limits without collateral.
- Cash in your hands quickly
- Collateral is not usually required
- Flexible repayment terms are offered by some lenders
- Subprime borrowers are subject to high interest rates
- Lenders may charge loan origination fees or other fees.
- If you have poor credit, it may be difficult to qualify for a personal loan.
Cash emergency loans advances for credit cards
When used responsibly, credit cards can be useful tools for emergencies. A cash advance feature is a feature on many credit cards that allows you to access cash quickly from any ATM or branch. The maximum amount of cash you can borrow will be limited to a certain percentage of your card limit or a fixed maximum amount.
The cash advance is not subject to additional credit checks because it is tied to your credit limit on your card. However, credit card cash advances are subject to higher interest rates that your variable APR card. You also don’t get a grace period as with daily purchases. The funds will immediately begin to earn interest. A transaction fee of 3 to 5 percent will be charged on top of the purchase price.
Who is this best for? Cardholders who have active credit cards and are in good standing can borrow small amounts. Existing cardholders who might not be eligible for a new line might find it an option.
- Any ATM can provide funds.
- Instant funding
- Borrowing at a high cost
- No grace period
Payday loans allow you to borrow a small amount, usually a few hundred dollars. These loans have a very short repayment term. Often, they are paid back within two weeks.
Because these loans charge high interest rates, they are generally considered to be predatory. The Consumer Financial Protection Bureau states that payday loans can charge as much as 400 percent interest. Additionally, payday loan borrowers are often unable to repay the amount due by the due date. This can lead to excessive lender fees, multiple bank overdraft charges, and a deeper debt hole.
This loan is for Borrowers with small amounts of cash and who can repay the loan completely in a short time. Avoid payday loans. Instead, look for emergency loans.
- It’s easy to get approved for, as most lenders don’t require credit checks
- Quick funding
- Sky-high interest rates, fees
- Short repayment period
Another type of emergency loan, a title loan, allows you to get fast cash. A title loan is also available to those with good credit.
Secured loans are secured loans that use your vehicle 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.
This loan is for consumers who can borrow small amounts but repay the loans in a matter of months. Borrowers who are unable to access other emergency loans may be able to get a title loan, but this should only be used as an option.
- Cash in your hands quickly
- Some lenders don’t require a credit check
- High interest rates
- If you default on a loan, a lender can take your vehicle.
Home equity emergency loans (HELOC) or home equity credit line
You may be eligible for 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 the value of your home and the amount you owe on your first mortgage.
A home equity loan offers lump-sum financing, a fixed rate of interest and repayment terms up to 30 year. HELOCs are revolving credit lines that allow you to draw funds for a set period, such as 10 or 20 years. Repayments can be made up to 20 years later.
Both types of loans are secured by your home, and you risk losing it if the loan is not repaid.
This is the best option for: Homeowners that need large loans to cover necessary expenses like home renovations or repairs, and education costs.
- The average home equity loan rate is lower than the average personal loan or credit card rate.
- Flexible terms for repayment
- You need to have equity in your home
- Lenders can seize your home if the loan is not paid on time
A payment plan can be an alternative to an emergency loan if you have an urgent need for money due to unexpected expenses. Let’s take, for example, a large medical bill that you are unable to pay in full. With your provider’s accounting or billing department, you might be able negotiate a reasonable payment plan.
This is the best option for: Individuals able to pay large expenses over longer repayment terms with lower monthly payments. This option is great because it doesn’t put you in further debt.
- Certain payment plans include interest-free periods
- A fee or interest may be payable
Paycheck advances are also known as payroll advances by some employers. These advances can be obtained through the company’s human resource department. Paycheck advances are funds that you can use to pay for future earnings. The terms of your state’s laws and the agreement with your employer regarding payroll advances may allow you to have the loan automatically deducted from your paychecks.
This benefit may be offered by your employer, but it could have restrictions on the amount and frequency of paycheck advances.
This is the best: Individuals in need of short-term loans. They should work for companies that offer these loan options.
- Some employers offer salary advances that are interest-free
- Employers may not offer this option
Refer a friend or family member
Borrowing money from family members or friends can be difficult. It’s 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.
Ask them if they prefer to pay in one lump sum or in monthly installments. If they prefer the latter, ask them how long they are willing to pay the loan off, and what they will expect to be paid for each installment. It is also wise to inquire if they are expecting interest on top the principal amount.
This is the best person for: Those who have strong relationships with their family or trusted friends and are willing to help.
- You may be charged little or no interest by a family member
- You can end your relationship with the lender by defaulting on the loan
What type of emergency loans should you apply for?
Personal loans are the cheapest of the four types of emergency loans mentioned above.
Personal loan interest rates are much lower than those for payday or title loans, even though your credit history will affect the rate. The average personal loan rate currently is 10.72 percent.
There are a few things that go into choosing the best emergency loan option for you. Consider the following factors when deciding on an emergency loan option.
- You can get emergency loans secured or unsecured depending on your qualifications and the lender’s offers.
- When choosing the personal loan that you should obtain, don’t forget about any discounts that you may be eligible for. An example of this is an interest rate discount. As an incentive to sign up for automatic loan payments, some lenders will reduce your interest rate by a small amount.
- Lenders evaluate many factors to determine whether you are eligible for an emergency loan. These include your credit score and income. Some lenders will be flexible with certain factors, so pay close attention to these details.
- There are many fees involved and lenders may charge different amounts. Ask about application fees, origination charges, late fees, and any other fees that may apply to you.
- Timeline for funding. If you require loan funds quickly, find a lender who offers fast funding. Some lenders will fund loans within 24 hours of approval.
- Interest rates. Higher credit scores can lead to higher interest rates. Low-rate loans can reduce your out-of-pocket borrowing expenses.
- Repayment terms. Lenders offer different repayment terms. Some loans can be as short as two years while others can last up to seven years.