Ideally, you should have an emergency fund set aside for unexpected expenses. However, if you don’t have one, you can resort to taking out an emergency loan to cover such expenses. One can get an emergency loan either through a payday lender, personal loan lender, or credit card issuer.
Getting to Know Emergency Loans
Emergency loans can come in a variety of forms. This includes payday loans, personal loans, and credit card cash advances. Moreover, it can be used for several types of emergencies like medical and dental emergencies.
1. Payday Loans
This type of loan most likely is small-dollar loans. They often provide borrowers with loans under $500. Moreover, you can use the loan amount for almost anything you like.
You can apply for a payday loan online or in person. Not only that, but this type of loan has become popular these days since it is easy to qualify for. Furthermore, payday loans come with less stringent credit requirements compared to other emergency loan types.
Most of the time, payday lenders don’t perform hard inquiries. Besides providing you with small-dollar loans, this type of loan also most likely has a repayment term of only two weeks. Hence, it would be best to make sure you will be able to repay this loan at the set period to avoid any financial problems along the way.
2. Personal Loans
In most cases, personal loans don’t have any restrictions on using the loan amount. You can opt to use the funds for anything you like. This may include car repairs, medical bills, and the like.
When it comes to personal loan terms, it will depend on one lender to another. This usually runs from under one year to several years. Moreover, you can get more access to cash by taking out a personal loan than the other two emergency loan types stated.
You will need to apply for a personal loan in order to get the funds you need. The loan approval and loan terms are most likely based on your creditworthiness. Furthermore, personal loan interest rates also vary by lender.
3. Credit Card Cash Advances
If you already have an account, it will be easier for you to avail of credit card cash advances. You can opt to take your credit card to the nearest ATM or bank branch and then input your PIN to request the cash. It is as simple as that.
Before you request a credit card cash advance, it would be best to consider a few things. First is that cash advances tend to have a higher annual percentage rate than your regular purchases. Moreover, this type of loan offers no grace period. This means the interest on the cash advance will start to accrue automatically.
Credit card issuers tend to charge a cash advance fee. It will cost you an extra 5% or more of the cash advance amount. Furthermore, it is vital to note that this type of emergency loan has a lesser limit than your account credit card limit. Hence, if you have a $2,000 limit on your credit card, you cannot get that same full amount in a cash advance.
Tips On Choosing An Emergency Loan
If you plan to take out an emergency loan, it will help if you don’t automatically select the first lender you interacted with. It is best to compare lenders and consider the following;
Funding Time
The funding time pertains to the period of getting the loan amount. Typically, the ideal time is within one or two days only. Moreover, several lenders might take a week to deposit the loan amount on your account, while others can provide you the cash on the same day you got approved.
Interest Rates
Having a good or excellent credit score can help you land an emergency loan with a low-interest rate. However, it would help if you still considered what interest rate lenders charge for a less-stellar credit score. After this, you can then compare lenders to know how much you will pay in the future, depending on your current credit standing.
Repayment Terms
The repayment terms vary from one lender to another. Do you want to pay off the loan fast with larger monthly payments? Or do you prefer to pay off the loan longer with smaller monthly payments? Those are the things you might want to think about first.
Fees
In most cases, lenders will charge you with fees. It would be best to read the fine print to know what fees a lender might charge you. Furthermore, emergency loan fees tend to include late payment penalties and origination fees.
Credit Score Requirements
Lenders most likely have a credit score threshold. You might need to reach that threshold in order for you to qualify. Moreover, your credit score will greatly influence how much you can borrow and how much the lender might charge you on the interest rate.
To Sum It Up
Emergency loans are a great option when it comes to paying for your unexpected expenses. This is because they can provide you with fast funding. Moreover, this type of loan can be easy for you to qualify for.