Emergency loans: What they are and how to get one

Emergency loans are one way to help cover life’s unexpected expenses, such as medical care or home repairs. But before you apply for an emergency loan, consider how these loans work and what your options are.

Keep reading to learn more about different types of emergency loans, some alternatives to consider and how to prepare for future emergency expenses.

What you’ll learn:

• Emergency loans generally refer to unsecured personal loans that let you access funds quickly if you’re approved. 

• Alternatives to emergency loans include setting up a payment plan or applying for a no-interest or low-interest credit card. 

• To help deal with unexpected expenses in the future, consider building an emergency fund.

Emergency loans are short-term loans typically used for medical bills, home improvements, car repairs and other financial emergencies. They’re often installment loans, meaning you’ll receive a lump sum and repay it in regular installments over a set period of time.

Loan types, fees, eligibility requirements and repayment schedules vary. Some emergency loans may be riskier and have higher interest rates than others. As with any loan, it’s important to understand the details, terms and conditions before borrowing.

With some emergency loans, you may get faster approval compared to other loan types. And the funds may be deposited into your account within a day. Then you’ll typically repay the loan by making fixed monthly payments over a set time period.

Emergency loans might be available from banks, credit unions, online lenders and more.

Any loan you can get on short notice to cover emergency expenses may be considered an emergency loan. But some may have predatory interest rates and come with more risk than others.

Here are some common types of emergency loans:

Many personal loans are unsecured, so you won’t need to put up any collateral to get the loan. But you might need good to excellent credit scores to qualify for the best terms and rates for an unsecured personal loan. 

Compared to some other types of loans, emergency personal loans may have shorter repayment terms, which can range from a few months to a few years. And since personal loans are generally a type of installment loan, they typically require regular monthly payments to pay them off.

Payday loans are usually short-term loans meant to be repaid by your next paycheck. They can have very high interest rates. If you don’t have the funds to cover the full loan amount when repayment is due, you may be subject to rollover fees, late fees and more. 

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, with some lenders charging an annual percentage rate (APR) of nearly 400%, according to the Consumer Financial Protection Bureau (CFPB). For this reason, experts generally suggest avoiding payday loans entirely, if possible.

Title loans are secured loans that use your car as collateral and allow you to borrow money against your vehicle. They’re typically short-term, high-interest loans geared toward people with less-than-perfect credit profiles. If you don’t repay the title loan, the lender can repossess your car.

Many title loan lenders require you to own your car outright. This means that if you’re still making payments on your vehicle, you would need to look at other loan options.

Here are some important things to know about emergency loans: 

• Higher credit scores typically help. Lenders set loan terms based on a variety of factors. But according to the CFPB, “a higher score makes it easier to qualify for a loan and lower interest rates.” 

• Repayment terms can vary widely. Some emergency loans are installment loans, which require monthly payments over a certain period. But how long you have to pay back the loan can vary. 

• Collateral may be required. Some emergency loans may be secured loans, meaning they require collateral. And that collateral could be taken in the case of default. 

• A hard credit inquiry might be needed. Applying for an emergency loan may result in a hard credit inquiry, which could impact your credit scores. Typically, one hard inquiry won’t have a large impact on your credit scores. But many hard inquiries in a short period of time may have a more significant effect. 

• Some loans carry origination fees. These fees can reduce the amount you receive by a given percentage. Make sure you know about these and any other fees associated with the loan.

Emergency loans can help in a pinch, but they can also be expensive and hard to qualify for. When dealing with a financial emergency, you may want to consider other options.

Some emergency costs can be paid using a payment plan. For example, you may be able to work with a hospital to pay medical bills in installments.

Some credit cards offer low interest or 0% APR for a period of time. If you apply and qualify, a card with an introductory rate could help you cover costs and avoid accruing more debt. Keep in mind that when the introductory period ends, the card’s standard APR will apply to any remaining balance.

Setting up an emergency fund can help you financially prepare for the unexpected. The CFPB has a page dedicated to emergency funds, including how much you might need and how to get started. It might seem daunting, especially if times are tight. But the agency says “even a small amount can provide some financial security.”

Emergency loans are short-term loans that are generally used to cover unexpected costs. Everyone’s financial situation is unique. And so are the terms of each emergency loan. Doing your research can help you decide whether an emergency loan is the best solution. 

For some people, a credit card might be a way to help manage unexpected expenses. You can compare the credit cards from Capital One to see whether there’s one that will meet your needs. See if you’re pre-approved today.