Emergency loans: What are your options?

Emergencies can happen without warning and often come with unexpected costs. An emergency loan can provide a quick way to access the funds you need to cover urgent expenses.

There are various types of emergency loans, and the best option for you will depend on how quickly you need the money, the amount required, and your financial circumstances.

Key takeaways

• Emergency loans can provide quick access to funds for unexpected costs, and there are several options.
• Options include personal loans, credit card cash advances, cash advance apps, title loans, and payday loans.
• Emergency loans can be used for things like medical bills, home or car repairs, or to cover short-term income gaps.
• Borrowers with bad credit can still access emergency loans through online lenders but may face higher costs.
• Before borrowing, consider alternatives such as using savings, negotiating payment terms, or selling unwanted goods to avoid taking on debt.

What are emergency loans?

An emergency loan is when you borrow money to cover an unexpected expense that needs to be paid as soon as possible. 

In an emergency, you need the money fast, so ideally, an emergency loan will have a quick application process and be able to release the funds immediately to your bank account.

Emergency loans are often offered as personal loans, but several different financing options are available when you need money urgently.

5 ways to borrow money in an emergency

Each type of emergency loan has different pros and cons, so it’s important to consider all of your options before deciding which is right for you.

1. Personal loans

A personal loan is a good option if you need to borrow a large amount of money, for example, more than $1,000. You receive a lump sum in your bank account and then pay the balance back in monthly installments.

Most personal loan lenders allow you to use the money for any purpose, which means they’re ideal in emergencies. However, how quickly you receive the funds depends on the lender and your situation.

Before you apply, find out how long it takes to get the money in your account. If you don’t have a strong credit history, you may need to supply additional documents, which could delay the process.

2. Credit card cash advances

Using your credit card to access cash can be a convenient way to cover an emergency cost. Many cards offer a credit card cash advance feature, which allows you to withdraw cash based on your credit limit.

You can get cash from an ATM or bank branch, so they are a speedy and convenient option. There is no need for an additional application, and you can withdraw cash immediately if your card allows cash advances. 

However, the amount you can withdraw is limited and based on your credit limit, and the interest rate charged on the advance is typically more than your card’s standard variable APR. 

Before you take out a credit card cash advance, check the terms and conditions with your provider to fully understand all of the costs.

3. Cash advance apps

Cash advance apps are a way of borrowing small amounts of money and repaying the loan on your next payday. They are useful when you need to plug a small financial gap in an emergency, as most apps only offer loans up to $500. 

Most cash advance apps are interest-free, but you will have to pay a one-off fee or a monthly subscription. They often don’t require a credit check, and the money is usually received on the same day.

The loan is usually automatically taken from your next paycheck. Before applying, make sure the advance won’t impact your next month’s budget. 

4. Title loans

If you own a car or other vehicle, you can use a title loan to access the cash you need in an emergency. They are a secured loan in which your car is used as collateral.

You can potentially borrow up to 50% of the current market value of your vehicle. However, if you’re unable to keep up with the repayments, the lender could seize your car to cover the outstanding balance.

If you have poor credit, title loans can be easier to get because the risk is reduced for the lender. However, it can take longer to get the funds as you will need to provide proof of ownership and insurance, and the car may need to be valued. 

5. Payday loans

Payday loans can be an effective way to borrow a small amount of money quickly, but they are also one of the most expensive options. They are designed to be paid back through your next paycheck.

The application process is usually quick, and you can typically receive the money almost immediately in your account. Some payday lenders’ approval process might not rely only on checking your credit record, which makes their product more convenient for borrowers with bad credit.

Payday loans have very high interest rates, and many states prohibit them altogether. Take time to assess your options before applying for a payday loan, and ensure the lender adheres to all regulations. 

Can you get emergency loans with bad credit?

Getting emergency loans with bad credit is possible, but the options may be more limited, and you could face higher interest rates. Lenders use credit scores to assess your reliability as a borrower, and a low score can signal higher risk.

Payday and title loans could be available for those with less-than-perfect credit, but there are also other options, including:

• Online bad credit loans: Many online lenders offer loans designed for bad credit borrowers. These lenders often focus on other factors, such as your income and ability to repay, rather than just your credit score.
• Credit unions: Local credit unions are for members only but are usually more lenient than traditional banks regarding bad credit. They can offer small, short-term loans with relatively low interest rates.
• Secured loans: If you have assets like property, you could apply for a secured loan. This can improve your chances of approval and lower the interest rate, but they can take longer to get.
• Guarantor loans: A guarantor loan, also known as a co-signer loan, allows you to borrow money if you have someone willing to co-sign the loan and take responsibility for repayments if you’re unable to.

What can an emergency loan be used for?

An emergency loan should be used for an unexpected cost that can’t wait and needs to be covered as soon as possible. Common examples of when an emergency loan might be needed include:

• Medical bills: If you, or a member of your family, needs medical treatment and insurance can’t cover the bill, an emergency loan could be an option to make up the difference.
• Home emergencies: A burst pipe, broken down washing machine, or faulty furnace can happen anytime and be costly to repair. An emergency loan can help you cover the cost of repair quickly.
• Car repairs: Car breakdowns can be disruptive, especially if you need your vehicle for work. They can also be expensive, but an emergency loan could help you get your car back on the road as soon as possible.

Everybody’s idea of what counts as an emergency will be different. However, it’s important to only use an emergency loan for a cost that needs to be cleared as soon as possible. 

Alternatives to emergency loans

If you’re in a financial emergency, there are other options to consider before you choose to borrow. Try these alternatives that could cover an emergency without going into debt:

• Use your savings: If you have enough money saved to cover the cost, consider using this to avoid the added cost of borrowing. 
• Ask friends and family: Try asking a friend or family member if they could lend you the money you need. You could even draw up a loan agreement to avoid any potential disagreements down the road.
• Sell unwanted goods: If you need a small sum quickly, you could try selling unwanted items online to generate funds.
• Get a second income: Taking on short-term or gig work could be a way to earn extra income to cover emergency cost, but it’s not always feasible.