Ideally, you can plan for any expenses. However, the reality is that unexpected expenses are bound to arise. If you don’t have the money to cover these expenses, an emergency loan may be a good option.
But before you apply, find out how they work, pre-qualify and compare your options to see if the loan is worth it. You may find it more ideal to explore other alternatives for the quick gains you need.
What is an emergency loans?
An emergency loan is an unsecured small loan that you can take out to cover unexpected expenses such as car repairs or medical bills with a short-term loan. There are several types of emergency loans, including personal loans, credit card cash advances, and payday loans.
6 Factors to Consider Before Applying for an Emergency Loan
Not all emergency loans are created equal, so it’s best to do your research and compare all available options.
Most lenders will check your creditworthiness before deciding whether to offer you an emergency loan. The higher your credit rating, the easier it is for you to get an emergency loan and get the interest rate and terms you want. Some lenders are open to both fair and bad credit borrowers, so don’t worry if you have a poor credit profile.
2. Repayment time
Payback time is the time you have to pay off your emergency loan. It can vary from a few months to a few years. While a longer repayment period means lower monthly payments, it also means you pay more interest in the long run. To reduce borrowing costs, opt for shorter repayment times. Just make sure you can afford the monthly payments.
3. Interest rate
Since the interest rate determines the overall cost of your loan, it is important to determine the minimum interest rate you are eligible for. If you don’t have the best credit, you may have to accept a higher interest rate than you want. The good news is that you can improve your credit score by making payments on time, which could open the door to higher interest rates in the future.
Analyze your spending plan to determine if you can afford your monthly loan payments. If this number is too high, you can choose a longer payment term and pay more interest. Alternatively, you can re-evaluate your needs and apply for a smaller loan amount at a monthly rate without overwhelming your budget.
5. Funding time
Once you are approved for an emergency loan, you may want to get your money as soon as possible. Online lenders tend to make quick payments within 24 hours or a few days, usually the same day you apply. However, traditional lenders such as banks and credit unions may take longer to approve your loan and distribute the funds.
6. Loan Features
Additional loan features include signing up for automatic payments or discounts on free monthly loan statements. Other features that can benefit you and reduce the overall cost of the loan are no late fees and no prepayment penalty for paying off the loan early. If you want to build or improve your credit score, choose a loan that is reported to the major credit bureaus.
How do I apply for an emergency loan?
To apply for an emergency loan:
- Compare emergency loans: Learn about the interest rates, repayment terms, financing timing, features, and creditworthiness requirements of several emergency loans. In this way, you can choose the option that best suits your needs.
- Read customer reviews: Read customer reviews and check lender ratings with the Better Business Bureau. Make sure you choose a reputable lender with a good track record.
- Get Prequalified: Most lenders allow you to prequalify in minutes. Prequalification can help you avoid hard loans on loan applications where you have little chance of being approved or where the interest rate is too high. This is important because a hard credit pulldown can temporarily lower your credit score.
- Fill out the application form: If possible, fill out the online application form; they usually make a quick approval decision. You must provide basic information about yourself and information about your income and employment. Lenders may also require you to share documents such as government-issued ID cards and pay stubs.
- Waiting for Decisions and Funding: With the instant loans and lenders you choose, you won’t have to wait long for an approved decision and funding. While most lenders distribute your funds via direct deposit, some lenders do so via checks or prepaid cards.
Should I apply for an emergency loan?
An emergency loan may be a good option if you have urgent expenses. This is a type of fund that you should only use once in a while.
If you can’t get an emergency loan, consider the following alternatives:
- Pay Advances: Ask your employer about your next paycheck advance. If they agree, you won’t have to take out an emergency loan and pay back interest on the amount borrowed.
- Payment Plans: Contact your creditors, lenders and service providers to let them know you are in financial trouble. They may be willing to work out a payment arrangement with you by splitting the amount owed or changing the due date.
- Grants and Interest-Free Loans: Call 211 to learn more about free assistance charities and nonprofits may offer in your area.
- Loans from friends and family: This option allows you to avoid a formal application process or lender’s credit check. Also, you may be able to avoid paying interest on the loan.
Finally, don’t rely on emergency loans or other sources of funding to pay for everyday expenses on a regular basis. If you regularly struggle to pay rent or mortgage, utility bills, and groceries, you may need to address income or budget issues.
Emergency loans can help you through unexpected financial hardships when you’re short on cash. Many lenders offer flexible eligibility criteria and extended payment terms when needed, giving you plenty of time to get your finances back on track.
However, you may find that this may not be the best option for your financial situation. In some cases, alternatives, such as a salary advance from your employer, a loan from a friend or relative, or financial support from a grant program in your area, may be a more viable solution.