Emergency Loans: What They Are and How to Get One

Unplanned expenses, like medical bills or car repairs, may leave you financially vulnerable. And even the best financial planners could need help covering these costs. But what’s the best way to get financial assistance when an emergency happens?

There are a variety of emergency loan options to consider when you need extra cash. And sometimes that’s all you need in order to handle the costs and get your finances back on track.

Key Takeaways

  • An emergency loan can help you get fast funding for unexpected expenses.
  • “Emergency loan” is a term that can describe any type of loan that can be used for emergencies. 
  • Some lenders may offer loan options without the need for a credit check. 
  • It can be harder to qualify for an emergency loan with bad credit. But there are additional options to consider.
  • You could set aside money in an emergency fund to cover unexpected expenses. This fund is usually separate from a long-term savings account.

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What Is an Emergency Loan?

There isn’t one specific type of emergency loan. It’s a term used to describe short-term loans that are typically used for emergency situations. Payday loans, cash advances, title loans and personal loans are some of the available options. And some, like payday loans, may be riskier than others.

Borrowers may be able to access emergency loan funds quickly. But these loans could have short terms and high interest rates. Emergency loan terms may vary by lender and could be affected by your credit scores. For example, higher credit scores may help you get better terms and interest rates for your emergency loans.

It’s important to compare options and review a loan’s terms and conditions before you apply. You may want to consider the loan amount, interest rate, fees and requirements you must meet. Knowing this information ahead of time can help you make an informed decision about whether an emergency loan is right for you.

Types of Emergency Loans

Any loan you can get on short notice to cover emergency expenses may be considered an emergency loan. Some common emergency loan options include:

Personal Loans

A personal loan can be used for a variety of reasons, like paying for medical expenses, home improvements, car repairs and other unexpected costs. 

Certain personal loans are unsecured loans. This means you won’t need to put up any collateral to get the loan. Since personal loans are typically unsecured, you could need good to excellent credit scores to qualify for the best terms and rates. 

Personal loans may have shorter terms that can range from a few months to a few years. And these loans typically require regular payments to pay them off.

Credit Card Cash Advances

A credit card cash advance lets you borrow money against your available credit limit. But be aware: Interest rates could be higher on cash advances. Credit card cash advances may not have a grace period for interest, so you could accrue interest from the date of the transaction. And when you use a credit card cash advance, you could have to pay a service fee. 

You may want to check your credit limit and review the terms before you take out a cash advance. The way you get cash advance funds can depend on your credit card issuer. You may be able to go to an ATM or your bank to withdraw the cash you need.

Riskier Emergency Loan Options

Payday Loans

Payday loans are typically used to get the cash needed before payday. And repayment is usually required when you get your paycheck. These loans can have short loan terms and very high interest rates.

Before you take out a payday loan, it’s important to consider your ability to repay it. You may need to use your next paycheck to pay off the loan. If you don’t have enough funds to cover the full loan amount, you may have to pay rollover fees. If you’re already cash strapped, these fees and high interest rates can make it even more difficult to pay the loan back.

Credit checks aren’t usually required for payday loans, which may make it easier to get funds if you don’t have great credit. But these loans can come with a hefty price, and some lenders charge an annual percentage rate (APR) of up to 400%. For this reason, experts generally suggest you avoid payday loans entirely, if possible. 

Title Loans

Title loans use your car as collateral and let you borrow money against your vehicle. They are short-term, high-interest loans that some people use if they don’t have good credit. But if you don’t repay the title loan, the lender can repossess your car.

Many title loan lenders require borrowers to own their cars outright. So if you still owe money on your vehicle, you may need to explore other options. 

Is an Emergency Loan Necessary?

If you don’t have the funds to cover unexpected expenses, you may wonder if you should take out an emergency loan. Here are a few things to consider before you apply for a loan:

  • Is the financial situation urgent or time sensitive? If you have time to save more money, it may be beneficial to wait. 
  • Review the emergency loan costs and terms. Ask yourself if you can realistically meet the financial requirements of the loan.
  • Is there an alternative option you could use to cover the unexpected costs?

Everyone’s financial situation is unique. And the drawbacks of an emergency loan may outweigh the benefits for your circumstances. You may want to explore alternative options, like a credit card with a low introductory rate

Choosing the Right Emergency Loan

If you’re looking for an emergency loan that’s right for you, you may want to keep these factors in mind:

  • Eligibility: Lenders sometimes provide better terms for higher credit scores. If you’re working on your credit, your options may be limited and the costs may be higher to borrow money. 
  • Loan amount: You’ll likely need a specific amount of money to cover the costs of an emergency. And you may want to verify that a lender will give you enough money to cover those expenses. 
  • Funding time: If you’re approved for an emergency loan, you can typically access the funds quickly. The funding time will depend on the lender. If you’re in a time crunch, you may want to confirm with the lender how long it could take to access funds.
  • Interest rates and fees: It’s beneficial to know what interest rate you’ll pay and any fees associated with borrowing money. When rates and fees are high, it can increase the costs of an emergency loan. Comparing costs can help you find a loan that works for your financial situation.
  • Terms for repayment: Repayment terms will vary depending on the lender. It’s important to compare repayment terms and interest rates to find the right loan for you.

Steps to Get an Emergency Loan

If your financial situation calls for an emergency loan, you may decide to apply for a loan from a bank or credit union. Lenders can set different loan terms, so you may want to compare loan amounts, payment schedules and interest rates before you apply. 

When you’re ready to apply for an emergency loan, these steps can help:

  1. Research emergency loan options to see if there’s a good fit for your situation.
  2. Understand how loan applications might affect your finances and credit.
  3. Compare loan options among lenders.
  4. Gather required documentation, and apply if you decide it’s the best option. 

Emergency Loan Alternatives

Emergency loans can help in a pinch, but they can also be expensive. You may want to consider other options before you apply for an emergency loan. 

Use a Payment Plan

Some emergency costs can be paid using a payment plan. For example, you may be able to pay medical bills in installments. Keep in mind: You’ll probably need to contact your provider and explain your situation to enroll in these payment plans.

Apply for a Low or 0% Interest Credit Card

Some credit cards have introductory promotions with low interest or 0% interest for up to 18 months. If you qualify, the introductory period may give you some time to get back on your feet. And a low—or no—interest credit card could help you cover costs and avoid getting into more debt.

Avoiding Future Financial Emergencies

Your finances may be affected by surprise bills or gaps in income. But setting up an emergency fund can help you financially prepare for the unexpected. Here are some steps you can take to build an emergency fund:

  • Check your living expenses. Your savings amount will depend on your expenses, income and lifestyle. Consider the cost of your mortgage or rent, food and other monthly bills. Then decide what amount you can comfortably put into your emergency fund each month.
  • Decide on a savings goal and timeline. A clear savings goal—whether it’s $500 or $3,000—and a timeline will help you budget your money. Experts recommend having an emergency fund with at least three to six months of living expenses saved.
  • Get a separate savings account. Putting your emergency savings into a different account could help you avoid spending that money for nonemergencies.
  • Make savings automatic. Setting up automatic transfers might make it easier to save money. 
  • Add extra income to the emergency fund. Tax refunds, side-hustle income and bonuses can boost your savings and help you reach your financial goals faster. 

Emergency Loans in a Nutshell

Surprises are a part of life. But surprise medical bills, car repairs or unexpected job loss can cause financial stress. Emergency loans might provide options for your financial needs. 

Everyone’s financial situation is unique. And so are the terms of each emergency loan. It’s important to do a bit of research to find the best emergency loan for your situation. 

Applying for a credit card could help you cover unexpected costs while you build your emergency fund. If you use a credit card to cover emergency expenses, it’s important to use it responsibly so you don’t take on unnecessary debt. You could also open a savings account devoted to your emergency fund. A savings account could help you earn interest on the money you’re saving.

We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.

Capital One does not provide, endorse or guarantee any third-party product, service, information, or recommendation listed above. The third parties listed are solely responsible for their products and services, and all trademarks listed are the property of their respective owners.

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