Many American adults look to emergency loans when an unexpected cost arises because they do not have enough savings to pay for it. The Bankrate survey found that more than half of American adults – 57 percent – would not be able to cover a $1,000 emergency expense using their savings.
Emergency loans can give you quick cash for unexpected payments. Learn about the advantages and disadvantages of working with different types of lenders and compare emergency loan options to find one that can provide you with financial relief.
What are emergency loans?
An emergency loan is a type of personal loan that borrowers can use after some type of crisis, such as medical bills or significant home repairs. They are small and get funded in just a few days.
How to Get an Emergency Loan in 5 Step’s
Making loan decisions can be difficult due to the stress of an emergency in your life. You might be talking to doctors in a hospital emergency, talking to insurance companies after a car accident, or staying in a hotel because your air conditioning broke down in the middle of summer.
Whatever the situation, there are five steps you can take to help you choose the right emergency loan for you.
1. Decide if you need a quick emergency loan
Examples of situations that require quick emergency cash include paying for a major car repair to get your vehicle back, paying a deductible to be admitted to urgent care, or paying an advance to a roofing repair company. Is. In other words, situations that demand immediate cash.
However, you may have some leeway to shop around for more emergency loan options at lower rates or better terms, for example, if you have time to plan for urgently needed surgery or dental work, or your insurance Covers the fare to get you there. Work while repairing your car after an accident.
2. Compare loan types and lenders
Once you’ve determined which emergency loan type is best for your situation, always compare the rates and terms offered by at least three different companies. The correct emergency lender for you depends on your financial condition and how fast you need the money.
Types of emergency loans
There are many types of emergency loans available. Each has its own advantages and disadvantages, and some may be better suited to your situation and finances than others.
If you need money quickly to cover your emergency bills, personal loans, payday loans, credit card cash advances and title loans may be the fastest path to the cash you need. If your cash needs are not time-sensitive you may also consider a home equity loan or HELOC.
3. Get Pre-Qualified
Most emergency lenders will pre-qualify you based on the information you provide when you start shopping. The key to getting the greatest loan for you will depend on several factor.
Credit score
Your credit score is used as a measure of risk by lenders for personal loans, home equity products, and credit cards. If your credit score hits a low level, you may need to shop around for loans offered by fair and bad credit lenders. If you need a no-credit loan, you may have to settle for a payday loan or title loan.
Depending on the type of loan you receive, you may also see a temporary drop in your credit score due to the stringent credit check. But consistent, timely and full payments will help boost your credit score as long as the lender reports to one or more of the three main credit bureaus.
Repayment Terms
Choose the shortest repayment tenure that you can easily afford so that a one-time emergency does not turn into long-term loan payments. The faster you can pay off the balance, the less interest you’ll pay in the long run.
Payday loans typically require the shortest repayments, usually within 14 days, while home equity loans can be available with terms up to 30 years. Personal loan terms range between one to seven years.
Rate of interest
HELOC and home equity loan rates are generally lower than other emergency loans. Personal loan rates can range from around 7 percent for excellent credit borrowers to as high as 36 percent for bad credit.
Payday and title loan rates are very high because in most cases the loans are not based on your creditworthiness. When shopping for an emergency loan, pay close attention to the APR to determine the most competitive rate.
4. Fill out the application
When you select the best emergency loan lender, you will need to complete an application and provide the required documents once you are approved. For a personal loan you may require documents like pay stubs, proof of address and your driver’s license.
A new HELOC or home equity loan may require the same documents you need when purchasing your own home, including property, tax returns and possibly even a home appraisal. Provide the documents as soon as possible to get your cash in the shortest possible time.
5. Wait for decisions and funding
The timing of your decision and funding will depend on the type of loan you have. Funding is usually deposited directly into your bank account with automatic payments set up for future payments.