An emergency loan is a type of financing designed to cover unexpected expenses. It's often used when savings aren't enough to handle urgent costs like medical bills or car repairs. Consumers have several options when choosing an emergency loan, depending on their needs and financial situation.
Knowing what kind of emergency loan you need is important if the consumer wants a quick way out of a financial bind. However, not all emergency loans are the same, and each has different features for a specific type of emergency.
What to Know About Emergency Loans
Consumers facing a financial emergency have multiple options for quick relief. The right loan choice depends on factors such as the nature of the emergency, the urgency of the funds, the preferred lender, and their budget for repayment.
Banks can provide financial assistance in the form of emergency loans. This begs the question, where do banks get their money to lend? They usually use customer deposits, which means the money kept in checking and savings accounts is often loaned out to other people in the form of loans, like emergency loans. Online lenders do the same thing, but they offer friendlier types of loans and are usually more lenient towards their customers.
Emergency loans have two types: installment and revolving loans. With an installment loan, a consumer can receive the funds immediately and repay it via fixed monthly payments over a set period. Revolving loans can allow you to borrow a specific amount, pay it off, and reuse the credit again for another circumstance.
Both options can be funded quickly. Sometimes, you can get the funds as early as the same day.
Installment Loans
Installment loans are great for consumers looking for a lump sum and a predictable monthly payment. The following loans are options worth considering.
Personal Loans
Personal loans are perhaps the most popular installment loan option. This is usually because they are easy to apply for and fast, with some online lenders even boasting same-day funding.
Most personal loans are unsecured, which means a consumer will be qualified based on their creditworthiness. Personal loans can usually range between $1,000 and $50,000. If a consumer has bad credit, there are also personal loans for people with less-than-stellar credit.
Payday Loans
Payday loans are small types suitable for emergencies requiring less than $1,000. They offer fast cash as small as $250 and are pretty quick, too, with same-day funding. As their namesake, repayment usually revolves around when the consumer receives their salary. Their credit is usually not checked because they are approved entirely by the consumer's paycheck.
Title Loans
This type of emergency loan stands out because it requires collateral—specifically, a vehicle title. As the name suggests, the loan is secured by a car title, but eligibility depends on full ownership, meaning the vehicle cannot have an existing loan against it.
This emergency loan allows you to borrow at least 25% of the car's total value, and repayment usually lasts 15–30 days. The best part is that it is easier to qualify for because of the collateral.
Revolving Options
Revolving options are great for consumers who want steady access to cash. They're also good for consumers who can't afford installments and don't need a huge lump sum of cash immediately. Because of this, the consumer will pay for the loan they got from their credit line. These are some of the options a consumer can consider.
Credit Cards
Using a credit card is usually the most hassle-free option compared to all the options listed. With steady access to cash, financial emergencies can be solved almost immediately. A cash advance is also good if a consumer is financially bound and needs cash.
Personal Line of Credit
A personal line of credit gives you the same flexibility as a credit card, but the only difference is that they are significantly less costly. Instead of paying the expenses used at the end of the billing period, lines of credit will only charge a consumer based on the loan they got from the line of credit.
Typically, a consumer has a cap of $20,000 that they can borrow from their line of credit, much less than a personal loan's typical borrowing limit.
Accessible Funding During Emergencies
Most experts recommend having savings of three month's worth of expenses to be ready for any kind of financial emergency. However, not all consumers can save that much because of today's everyday expenses. That said, it's always good to know that during financial emergencies, there are several options that a consumer can opt for.
