What Is The Best Loan for Emergencies?

Emergencies happen, and unfortunately, many people aren’t financially prepared for them. When an emergency happens to you, do you have enough money saved to cover it?

Depending on the emergency, you could be looking at a bill that costs you thousands of dollars. Anything can happen in your life, including illness, accidents, and natural disasters that leave you with a significant financial burden. From expensive medical bills to home repairs after a house fire, emergencies are expensive.

Luckily, you have options. If your savings account can’t cover the cost of your emergencies, a loan may be able to. Emergency loans are personal loans that can be applied for and disbursed quickly, allowing you to use the funds for unplanned expenses as soon as possible.

Individuals with good credit scores will get the lowest rates, but there are many types of personal plans you can use for a variety of emergencies, and some lenders may approve you for a loan even if you have poor credit.

Choosing The Right Loan

While you may feel panicked about choosing the first loan you qualify for, you should still take the time to stop around with different lenders to find the right one for you. After all, your emergency loan should be something you can repay over time.

Here are some factors to consider when choosing the best loan for you:

  • Interest rates: You can get lower interest rates with a better credit score. However, you can also shop around for loans based on interest rates. Taking the time to do your research to find a low rate could help you save money over the life of the loan.
  • APR: APR includes the interest rate and associated fees. This number will give you a better idea of your loan costs, so try to use it to compare different offers.
  • Timeframe: For emergencies, you need fast access to cash, so you must determine how long it will take a lender to deposit the money into your bank account. Some lenders may send you the funds same-day, but others may take several days to deposit the funds.
  • Terms: The repayment terms outline the time you have to repay the loan, which will impact how much you pay monthly. Longer terms have lower monthly payments, so if you’re strapped for cash, you may need to find a loan with longer terms. Consider how fast you want to pay back the loan, including the monthly payments you can afford and the terms different lenders offer.

Types of Emergency Loans

There are several types of loans you can use for emergencies, including:

1. Personal Loans

Personal loans are the most common type of emergency loan. Any personal loan can be used to fund anything, including emergencies.

Banks, credit unions, and online lenders offer personal loans that allow you to receive the funds as a lump sum that you’ll repay monthly.

These loans also come with added interest and fees. Personal loans let borrowers repay the loan over many months, but repayment terms vary by lender.

They also offer you the opportunity to receive funding quickly. Borrowers who want lower interest rates than credit cards can benefit from personal loans that provide fast access to cash without requiring collateral. Unfortunately, they can come with steep interest rates for those with low credit scores, and origination fees can be expensive depending on the lender.

2. Cash Advances

Credit card cash advances allow you to fund emergencies, including medical bills and repairs to your home or vehicle.

They can be useful when you need fast access to cash, and many credit cards have a cash advance feature that allows you to borrow cash from an ATM or bank.

Unfortunately, how much you can borrow is limited by your card’s limit or a set amount, depending on your credit card provider.

The cash advance is tied to your credit limit, so it doesn’t require a second credit check. However, they have higher interest rates than personal loans, and there’s no grace period, so you’ll begin occurring interest immediately.

Credit card cash advances are ideal for individuals who have active credit cards in good standing and only need to borrow up to their credit limit.

It may not be the right choice for individuals who don’t qualify for a new line of credit. With cash advances, you’ll have same-day funding, but there’s a high cost of borrowing the money.

3. Payday Loans

Payday loans are instant loans that allow you to borrow a few hundred dollars, so they’re not ideal for expensive emergencies.

Additionally, the repayment term for payday loans is short, typically by your next pay period. Payday loans can be risky because they have high-interest rates, which can be as high as 400 percent. Additionally, if you cannot repay the loan by the due date, you’ll be faced with excessive fees, overdraft charges, and larger debt.

Payday loans are best for individuals who only need to borrow a few hundred dollars and can ensure they can repay the loan in the set timeframe.

However, since they carry mass amounts of risk, payday loans should be avoided when possible.

4. Title Loans

If you feel comfortable using your vehicle as collateral, you can get a title loan that gives you access to funds. Title loans are secured loans, and if you cannot repay the loan by the end of the term, your car can be repossessed.

In most cases, you’ll only have 30 days to repay the loan, so this type of emergency loan is not ideal for borrowers who need to borrow thousands of dollars.

Additionally, you shouldn’t risk your car if you’re concerned about your ability to repay.

Title loans give you quick access to cash and may not require a hard credit inquiry, but they come with high-interest rates and the risk of having your vehicle repossessed if you default.

Choosing The Right Loan for You

While there are many different types of loans, it’s always best to consider how much you need to borrow and when you can repay the loan. All loans carry risk, but in emergencies, they may be necessary.

The best type of loan for an emergency depends on your needs and financial health, but a personal loan is typically the best choice for all types of borrowers because you can get a lump sum delivered to your bank account quickly and have different terms to choose from for how long you have to repay.