An estimated 4 in 5 of Americans live paycheck to paycheck, with practically no financial cushion if something unexpected should happen. Having insurance can certainly help, but no policy covers every eventuality and in any case, takes some time to pay out.
One solution to a sudden financial crisis is to take out a quick emergency loan. This gives you options when you need them most and can help you out of a tight spot. Don’t, however, fall into the trap of thinking that this is free money: whatever your circumstances at the time you take out a loan, you will have to pay it back, with interest.
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What Are Short Term Emergency Loans?
Almost all personal finance experts recommend keeping the equivalent of several months’ living expenses in a bank account or a short-term investment you can cash out quickly. Unfortunately, this is often easier said than done: many people have their hands full just trying to make it to the end of the month without the cupboard running bare. Saving is just not an option for them.
Even families who do have some money squirreled away can be caught short by major unforeseen expenses like a tax obligation they didn’t know they had or medical bills. To give one example, a root canal costs as much as $1,000 and it’s really not something you’ll want to put off until next month. An unexpected but unavoidable trip can easily set you back even more – if you can’t pay for expenses like these out of pocket, you’ll simply have to borrow some cash.
Emergency loans are structured to appeal to people facing exactly this kind of dilemma. They are usually unsecured, meaning that you don’t have to pledge your car or house as a guarantee of your ability to pay back the money you borrow. The approval process is typically very streamlined and may take only minutes to complete, while this kind of credit is available to people in a wide variety of financial circumstances.
There is a catch, of course: fast emergency loans help to balance your books for the moment, but the lack of collateral and lose approval criteria generally mean that you’ll be paying much more interest than with a loan that takes longer to be processed. This can’t always be helped, of course: it’s entirely reasonable to commit to paying more later if your priority is getting emergency money now.
Where Can I Get an Emergency Loan and What Are the Differences Between Them?
Emergency loans come in many different flavors. Which is most appropriate for you depends on the amount you need right now, but also your overall financial situation. Someone with relatively little existing debt and a track record of not falling into arrears will naturally have access to more and better options, but nearly anyone can qualify for some kind of emergency credit.
If you have an existing relationship with a bank, they’ll probably be eager to sell you another financial product. You should probably talk to them first if you need some ready cash in a hurry. If this avenue is not open to you, or you don’t like the terms they’re willing to offer you, you need only turn to online emergency loan help websites to find a whole smorgasbord of accredited lenders willing to work with you. Before you start looking, though, it will be useful to know what basic kinds of emergency loans exist and what the advantages of each are:
A loan meant to be paid back over several months at fixed intervals and amounts is called an installment loan; depending on your credit profile, you may borrow as much as $35,000 in this way. Interest rates on most types of installment loans, including unsecured personal loans, are usually better than those on payday loans or credit card balances. One major advantage of this type of credit is that you can choose the loan period that suits you best: either pay a larger amount each month to clear the debt quickly, or opt for lower monthly payments at the cost of paying more interest in the long run.
Companies that offer emergency installment loans typically don’t run a “hard” credit check as part of their approval process, meaning that your FICO score won’t take a slight hit when applying for one. Paying one back on time, on the other hand, can actually improve your credit rating, making these a useful tool for improving your finances as long as you’re sure you can keep up with the payments.
Cash advances, or payday loans as they are sometimes called, are a form of very short-term credit; you’re typically expected to pay back the money plus interest within a matter of weeks. Expressed as an annual percentage figure, interest rates on these are very high, but this shouldn’t matter as long as you plan responsibly. Effectively, you’re paying for the extreme convenience this kind of loan offers; you can typically expect to see the money in your bank account within 24 hours, with few questions asked about things like your credit history and what you plan to use the funds for.
You should know that payday loans come with significant risk attached: the lender is under no obligation to verify that you will, in fact, be able to repay the loan on time as long as you believe this to be the case. Many people have miscalculated and borrowed more than they could afford in this way, leading to them getting stuck in a debt trap that’s difficult to escape. On the other hand, if you need a small amount of up to about $1000 really quickly and you’re confident that you can redeem the full amount with your next paycheck, cash advances are certainly worth considering.
Credit Card Loans
In terms of repayment periods and interest rates, using your credit card falls somewhere in between cash advances and installment loans. Like payday loans, this is a very convenient option: if you can’t charge whatever expense is facing you directly to the card, you can apply for a credit card cash advance, giving you greater flexibility while trying to recover from some setback.
The drawback to this is that most credit card companies charge an extra fee for doing this. Unlike most transactions, there’s also usually no grace period before interest begins to pile up against the sum you borrowed, so it’s definitely a good idea to get your outstanding balance to zero as soon as possible.
Alternatives to Emergency Loans
Emergency loans come with a price tag: you’ll always have to pay back more than you borrowed. Before considering how to get an emergency loan, you might want to decide whether this is a good idea in the first place and think about what you can do instead. It’s easy to panic when you’re not sure if you can make your rent and utility bills, but taking a step back and considering things objectively may prevent you from making an expensive mistake.
It might, for instance, be possible to defer major expenses until a later date. If your washing machine is broken, you can tough it out and use your local laundromat for a few weeks. If, on the other hand, you need to fix your car to get to work, borrowing money to keep earning may be the sensible choice. Something that will be on many people’s minds around the end of the year is the idea of taking out a Christmas loan to celebrate the holidays in style. Only you can decide whether a special occasion merits taking out an interest-bearing loan, but wanting to buy presents is in no way a real emergency.
You may also be able to get by without approaching a financial institution at all. Especially if you’re still a student, your family may be willing to help out if you find yourself in a tight spot through no fault of your own. If you’ve been at the same job for some time, you can ask your employer for a paycheck advance which will be deducted from your future earnings. Whether this option is available to you depends on the company you work for, but it does have one major benefit: your credit score typically doesn’t matter at all and every employee qualifies for the same interest rate.
Advice for Getting Your Funds More Quickly
If I need an emergency loan today but I can’t access the necessary funds until the day after tomorrow, the end result may well be the same as not getting the loan in the first place. How long things end up taking largely depends on the lender, but the good news is that many of them realize that time can be a factor for their clients and offer impressively fast turnarounds. As for what you can do on your end to expedite the process, a couple of commonsense guidelines may help you save time while also getting a better deal.
- Approach the right kind of lenders
Though you may get lucky, it’s probably a waste of time to apply for personal emergency loans at a bank if you have poor credit. Lenders who specialize in an instant, unsecured loans are more likely to tell you immediately whether you qualify or not and may even offer you a more attractive interest rate.
- Shop around
No matter how urgent your emergency, accepting the first offer you’re approved for is almost certainly a mistake. Online comparison tools are a fantastic way of getting half a dozen or so provisional quotes in minutes, so don’t be too hasty. Remember that your business is valuable; lenders will compete to have you as a client.
- Have all your ducks in a row
Before you even start to contact lenders, you should have your bank routing number, pay stubs, canceled rent checks and similar information ready to hand. Scanning them into your computer before you’re asked to may also save time. Whatever may help to prove your ability to pay back the money you’re looking to borrow or speed the payout process is worth having ready to hand; this will help you jump to the front of the queue compared to someone who doesn’t have their paperwork in order.
Unfortunately, when it comes to preparing for those inevitable rainy days, people use the past tense way too much, saying “I should have saved” instead of “I will start putting money aside.” It’s simply human nature to hope for the best, but if the smooth sailing you were planning on turns into rough waters, an emergency loan can help to plug the leak.
It’s wise to be cautious here, however. “Emergency” means exactly that: these loans are designed to get you out of a temporary predicament and should be used sparingly and only when you have no better options. Paying interest on borrowed money each month severely cuts into how much cash you have available for life’s little luxuries and even necessities, so, if at all possible, your focus should be on getting rid of high-interest debt rather than taking on more.