Emergency Loans: Everything You Need to Know

Emergency Loans: Everything You Need to Know

Needing an emergency loan can be scary and overwhelming. After all, unexpected costs like medical expenses come hard and fast and don’t necessarily allow you ample time to slow down, think, and process. And if...

Needing an emergency loan can be scary and overwhelming.

After all, unexpected costs like medical expenses come hard and fast and don’t necessarily allow you ample time to slow down, think, and process. And if you don’t have excellent credit, the idea of securing fast funding from a bank or credit union may seem impossible.

However, emergency loan lenders can help people with poor credit get cash quickly. Of course, emergency loans can have steep costs and unmanageable terms, so you should exhaust all other options before you go down this path.

If you do go the emergency loan route, though, there are reasonable options that come in all shapes and sizes. You’ll prequalify for better loan terms with a higher credit score and lower debt-to-income ratio, but that doesn’t mean a good credit score is required.

As you do your research on the best personal loans and emergency funding options for your needs, keep in mind that you’re not alone.

According to the Federal Reserve, 40% of Americans can’t cover a $400 emergency expense. In fact, thousands of Americans apply for emergency loans every day.

Whether you unexpectedly need to go to the hospital, have car repairs to cover, or need to take care of an unforeseen bill, there are plenty of reasons you may need money fast.

So, take a deep breath and get ready to learn about all your available choices if you’re in a bit of a cash crisis.

Evaluate Your Emergency Loan Options

Emergency loans work by getting you cash in a timely manner—sometimes within one business day.

The five types of typical emergency loans are payday loans, personal loans, credit card cash advances, title loans, and pawn shop loans.

Let’s take a closer look at each option, starting with one that must be paid back quickly:

Payday Loans

A payday loan is a short-term, small loan that typically comes with a fast application process. Most payday loans don’t require good or high credit scores, and they usually have a high APR that averages around 400%. Payday loans are secured by a personal check or direct deposit into the borrower’s bank account.

Standard payday loan terms require borrowers to pay the full amount back all at once by their next payday. Keep in mind that regulations for payday loans differ by state. For example, California has a maximum loan amount of $300. On the other hand, Maine allows payday lenders to loan as much as $2,000.

A Loan From Possible Finance

A Possible loan is an installment loan up to $500 that’s repaid every few weeks and can be fully paid in a few months. APRs are higher than personal loans but much lower than payday loans and bank overdrafts.

Because Possible reports to credit bureaus, you’ll be able to build credit history with on-time payments. Best of all, there’s no FICO credit report check, so your past won't affect your current emergency.

Because you can pay your emergency loan back over time, you avoid the issues caused by payday loans or payday advances. Possible won't be taking your entire paycheck to cover your time of need.

Personal Loans

Personal loans are typically installment loans that have a fixed interest rate. These loans range in both the principal amount and the duration of the loan, depending on the lender. Some personal loan proceeds can be as little as $1,000 to as much as $5,000.

In addition, be prepared to pay between 1-8% of the total loan amount in origination fees, which typically include online application fees, credit report fees, and loan closing fees.

Overall, the flexibility of using a personal loan lender can be beneficial for an emergency situation where unexpected expenses must be covered.

A final note on personal loans: Check with your lender about prepayment penalties and policies on late fees.

Credit Card Cash Advances

A credit card cash advance is taking out an available balance on your credit card as a short-term loan. However, most credit card companies charge high interest rates for cash advances.

Plus, credit card cash advances can also come with high processing fees that can add additional unseen expenses--the last thing you need when you’re already seeking emergency loan funds and financial aid.

Title Loans

If you’re a car owner, you can consider a title loan. A title loan is a type of secured loan that uses your car’s title as collateral. Usually repaid in a month, lenders often offer to renew or roll over the loan at significant fees or costs.

However, because this type of emergency loan is secured by your car, your car can also be seized if you are unable to repay the loan back. That could land you into a worse emergency than the one that caused the loan.

Pawn Shop Loans

Pawn shop loans are typically secured loans that require you to use an item of value as collateral. The pawn shop will hold on to the item of value and can sell it if the cash loan is not paid back.

A pawn shop’s loan amounts vary on the collateral you bring in. Commonly pawned items include jewelry, collectibles, electronics, and firearms.

The minimum loan amount you’ll receive is usually 25% of the resale value of the pawned item, and you may receive as much as 60%.

With no credit inquiry or loan approval process to go through, a pawn shop loan is one of the best emergency loans to choose if you need cash in a hurry.

Alternatives to Emergency Loans

If none of those emergency loan options work for you, there are alternative routes you can take to get the money you need.

Low-Interest Credit Cards

Although this may not be a viable option if you have bad credit, if you meet the minimum credit score, you may meet the eligibility requirements for a low-interest credit card that has a 0% intro APR that lasts for a certain period of time.

If the debt is paid back within the promotional period, you can use this credit card as a short-term loan. However, it’s important to remember that the application process involves a hard credit inquiry, which can negatively affect your credit score. (Soft credit checks do not affect your score.)

If you choose this route, it’s best to pay off debt associated with the credit card in a timely manner since accrued interest can build quickly. Use autopay to stay on track and ensure you won’t incur late payment fees.

Student Loan Repayment Plans

The weight of student loan debt can take a serious toll on your mind and your credit score. Each federal and private loan owner has multiple ways to pay back student loan debt.

One of the most popular is the income-driven repayment plan structure. Loan terms allow the borrower to pay back their loan in proportionate amounts to their income.

Make sure to look into all of the options the lender for your student loan offers by reading the website or scheduling a call with a company associate.

Medical Bill Repayment Plans

Many medical providers, including hospitals, dentists, and physician offices, have payment plans that can be utilized to pay off bills.

Even better? Most hospitals don’t charge interest on these payment plans. Contact the billing department of the hospital to request a payment plan, and aim to engage with the billing department before your bill becomes delinquent.

This makes for affordable monthly payments over time, which will allow you the flexibility to pay off these bills without damaging your credit score.

Home Equity Line of Credit

Also known as a HELOC, a home equity line of credit allows you to use your home as security for a revolving credit line that can be used for larger expenses or for high-interest debt consolidation.

A HELOC loan has a variable interest rate that can lead to fluctuating payment amounts.

A HELOC loan also risks a possible foreclosure on your home as a worst-case scenario, so plan wisely if you choose this emergency loan alternative.

Credit when you need it is Possible.

The Possible Card is coming. Join the waitlist to be the first to know.

How to Plan for Your Next Emergency

There’s no way to predict your next emergency, but you can start planning for it in small ways. The easiest way to do this is by setting yourself up with a high-yield savings account, also known as a rainy day fund or emergency fund. If you already have one, you’re one step ahead!

Next, adopt a financial plan that allows you to put money in the account when you pay other bills.

By setting aside as little as $25-50 from every paycheck, you can start building yourself a nest to protect yourself from needing to rely on an emergency loan the next time unexpected expenses pop up.

Government Assistance During Emergencies

Even the federal government understands the financial implications of emergencies. When catastrophic events like hurricanes and natural disasters strike, there are ways for those affected to secure financial assistance that don’t involve emergency loans or unsecured personal loans.

Perhaps the most poignant example is the $2 trillion economic stimulus package the federal government approved for both American businesses and citizens. The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion for businesses, with the rest of the money used to provide up to $1,200 stimulus payments for all eligible U.S. adults and $500 per qualifying child.

Meanwhile, the Low Income Energy Assistance Program (LIEAP) can provide assistance with emergency services in times of crisis, such as in the midst of utility shutoffs.

The Emergency Rental Assistance (ERA) Program has provided economic relief for both renters and landlords during the pandemic.

You may be surprised at the number of federal, state, and local programs that provide emergency financial assistance. Do your due diligence and check with relevant government entities for potential ways to cover applicable expenses.

The Bottom Line

Before you fill out an emergency loan application, take a minute to determine if the repercussions of the loan are manageable.

Read the loan terms in their entirety, and compare them to other credit unions or online lenders like Upstart and Avant before you sign your name.

Try to find repayment terms that allow for practical repayment amounts and low finance charges. Ultimately, understanding what you’re agreeing to will help prevent future stress.

And if you really need an emergency loan, check out Possible Finance—a friendlier, more flexible emergency loan!

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