Life is full of unexpected surprises. When you are faced with emergency expenses like car repairs, medical expenses, or major home repairs you may not always have enough money in your savings to cover the costs. If you need help securing money quickly, you may be interested in an emergency loan.
When it comes to financing emergency expenses, you have a few different lending options. What loan options are available to you depends on your credit history and how much money you need. We will go over some of the most common options for emergency loans and the advantages and disadvantages of each. Be sure to calculate your costs, weigh your options, and thoroughly research your lenders before making a decision.
The Top 5 Emergency Loan Types
Payday loans are a common short-term loan option. If you commit to a payday loan, a lender will loan you a small sum of money to cover your emergency expenses. Payday loans cannot be paid back in installments, instead, you must pay them back in full all at once.
Typically, you only have a couple of weeks to repay the loan as the lender assumes it will be paid back with your next paycheck. Payday loans are often available both online and in-person at the nearest payday loans store. Though payday loans may not require a credit check and can get money in your hands quickly, some may have high interest rates so make sure to do your research.
Installment loans are sometimes known as personal loans. Like payday loans, these loans can provide you with a lump sum. The amount can vary depending on how much you need. Unlike payday loans, installment loans can be paid back over time, in installments. Usually, these loans have a fixed interest rate.
In most cases, the lender will require a check of your credit health. Though installment loans may be a good option for some, not all will qualify.
Cash Advance on a Credit Card
A cash advance on a credit card is borrowing against your credit card in order to get a lump sum of money quickly. You can use the available balance in your credit card account to withdraw money. Some companies limit how much you can withdraw while others do not.
While it can put money in your pocket quickly, and from a lender you are familiar with, there might be associated fees. A cash advance on your credit card can come with a high interest rate and interest will usually start accruing immediately. There can also be a transaction or processing fee. It is best to formulate a plan that will allow you to repay the loan as quickly as possible when taking a cash advance.
Car Title Loans
Also known as a fast auto loan, a car title loan is essentially using your car as collateral when taking out a loan. To be eligible for a car title loan you need to own the vehicle outright or have equity in it, which usually means you owe very little on it.
Car title loans aren’t typically large sums of money as the amount only accounts for anywhere from 25% to 50% of your car’s value. You will need a clear title, proof of insurance, and ID. If approved the lender will take your title until you can repay the loan. Beware of costly fees and high interest rates. Additionally, you may have your car seized should you fail to repay.
Pawn Shop Loans
A pawn shop loan uses a valuable item that you own as collateral, much like a car title loan. The pawnshop acts as the lender and will give you a sum of cash depending on how valuable they determine your item to be. They will then keep the item until you can pay back the loan, which can usually be done in installments.
If you do have a valuable item, a pawnshop loan can be an easy way to receive cash quickly. Especially because they typically don’t require you to be in good standing with your credit score or financial history. However, if you can’t repay your loan the pawnshop is legally allowed to sell your item.
Alternatives to An Emergency Loan
Emergency loans are often the quickest way to get a lump sum of money. Other options, like obtaining a home equity line of credit or restructuring a student loan or medical loan payment plan may not provide you with enough money quickly enough. Alternatively, you may not have the financial health to pursue options like applying for a credit card.
Emergencies happen, and you’re not alone in needing to take out a loan. Just make sure that you thoroughly research all of your options and plan for how you will repay the loan before you commit to a lender.