The unexpected nature of life involves emergencies, and dealing with them often involves having to pay for some sort of service or product. That usually isn’t an issue if you have an emergency fund, but what happens when it has been depleted and hasn’t had the time to replenish?
That’s where emergency loans come in, and in this guide, we’ll discuss what emergency loans are, how they work, what they’re used for, and how to choose the correct lender to obtain your loan.
What Is an Emergency Loan?
An emergency loan is a type of personal loan specifically designed to cover some type of urgent and often unexpected expense. These are installment loans, which means you receive the money in a lump sum and repay it through monthly installments, with repayment terms lasting from a couple of months, to a couple of years.
Emergency loans are often unsecured loans which means that the borrowers aren’t required to submit any kind of collateral (real estate or personal property) in order to secure the loan. However, such loans involve higher risks perceived by the lender, which is why they’re typically extended to borrowers with good credit scores.
For borrowers with poor credit, lenders also offer emergency loans for bad credit. The defining characteristic of these loans is that eligibility isn’t determined by your credit history, and lenders only perform credit checks to help them formulate loan terms and interest rates based on your creditworthiness. Naturally, better terms are reserved for individuals with better credit scores.
Due to the higher perceived risk, emergency loans for low credit scores often have higher interest rates. Annual percentage rates (APR) for emergency loans range anywhere from 6% to 36%, with loan amounts ranging from $1000 to $100,000, which lenders typically approve within a day or two. Some lenders offer secured loans which require a co-signer or a co-borrower but are usually easier to qualify for.
It’s important to note that most reputable lenders report loan payments to major credit bureaus, so on-time-only payments will help you build credit, leading to more favorable terms in the future.
How Emergency Loans for Bad Credit Work
Emergency loans are just like typical installment loans you would borrow from a traditional financial institution. However, traditional loans imply that the lender checks your credit history, and if your credit is good or excellent, that is a sign that you’re creditworthy, a low-risk borrower, and privileged to receive more favorable loan terms.
However, things work differently when you have a bad credit score, as it signals that you have a history of making late payments on your debts and are likely to continue doing so in the future, which makes you a greater risk in lenders’ eyes.
Some lenders approve emergency loans for bad credit. All you need to do is complete the loan application process, during which the lender will inquire about your credit score. Despite being marketed as loans for individuals with bad credit, all lenders perform credit checks. However, this is only a soft credit check that won’t adversely affect your credit score.
Online lenders will typically use your credit score and income-to-debt ratio to determine your eligibility for the loan, loan amount, repayment terms, and monthly payment size. Once the loan is approved, the lender will present you with the loan offer, probably the same day, and you can either accept or decline.
If you find the loan offer and amount are favorable and accept the loan, the lender will deposit the loan amount into your bank account the very same day or the next business day. All that’s left is to repay the bill and keep up to date with monthly installments.
Why Get an Emergency Loan When You Have Bad Credit?
Getting a personal loan when you have poor marks on your credit report isn’t really the most viable solution since the poor credit score limits your loan options and costs you more money in interest and fees. Emergency loans for bad credit may be our best option if you’re in a really tight spot, as they are often much more affordable compared to payday loans, cash advances, and credit cards.
In addition to providing an answer to your financial emergency, responsible management of your loan and timely repayment can actually help improve your bad credit score and provide you with more favorable outcomes. As for why you might consider getting an emergency loan for bad credit, the reasons are plenty:
- Debt consolidation: As debt mounts up, tracking multiple installment deadlines and interest rates becomes quite challenging. Emergency loans for bad credit can help you consolidate your debt by repaying all of your pressing obligations and combining their interest rates and monthly payments into flat-rate monthly installments. This is particularly useful for paying off credit card debts, as those typically have pretty high-interest rates.
- Home improvement: If the only thing standing between you and a line of credit granted by a credit union is your bad credit score, an emergency loan can be the right kind of fast funding you need for home repairs, renovations, or complete remodels. While some wouldn’t consider this an emergency, it’s important to note that home repairs sometimes involve remedying structural damages.
- Medical bills:Though most medical and healthcare facilities allow their patients to pay their medical expenses through monthly repayment plans, a sound, unsecured personal loan could pose a better financing option. The same can be said for student debt.
- Car repair: Car malfunctions often happen unexpectedly and cause significant inconvenience, not to mention price repairs, which often include the price of parts and labor. An unexpected bad credit loan can help you cover the costs of repair.
- Relocation: Relocation incurs additional costs, and hiring full-service movers for a cross-country relocation can cost up to $10,000, depending on various factors. Getting an emergency loan can help you cover the expenses of moving to a different city or state.
While most lenders don’t concern themselves with how you spend your loan funds and what exactly constitutes an “emergency,” some lenders do impose restrictions on how you can use your loan. These restrictions include gambling or paying for education tuition and fees, but most other situations that would be considered urgent aren’t among the restrictions.
Since emergency loans for bad credit are expensive, you should carefully consider whether or not your situation really constitutes an emergency. Which leads us to the next point:
How to Choose the Best Emergency Loan
The internet and online lenders allow us to compare loan products more efficiently. However, due to the sheer number of loan products, choosing the one that best fits your needs isn’t as easy as it sounds. Consider the following factors when comparing emergency loans for bad credit:
- APR ranges: Emergency loans have a more competitive interest rate compared to short-term loans, such as credit card cash advances, whose APR can go as high as 300%. Most installment loans typically feature APR ranges between 6% and 36%, with more favorable terms and loan rates reserved for those with excellent credit.
- Loan amounts: Emergency loan funds typically range from $1000 to $100,000, so it’s important to find a lender who will lend you as much as you can comfortably repay. Most lenders nowadays offer online credit and payment calculators to estimate loan costs and monthly installments.
- Loan repayment terms: Emergency loan periods typically range from 12/24 to 72 months for repayment, and some lenders provide more flexible terms, like lower interest rates for prepayment or simply longer terms than others. Make sure to choose a lender whose terms work with your budget.
- Application requirements: These days, most loan lenders offer online application and approval processes that don’t require a physical visit to a branch office. Other lenders might have stricter requirements than others and might even charge origination fees, prepayment penalties, or impose a minimum credit score requirement.
- Funding speed: Emergency loans imply that you need the loan as soon as possible, so compare and choose lenders based on their average funding speed. While some companies offer same-day funding, others handle their payments the following business day or several days later. Please note that the choice of lender also impacts how quickly you receive the funds.
- Reputation: Before choosing a lender, check online reviews and, if you’re able, speak with friends and family members who have previously conducted business with them. Reviews can provide insightful information about the length of the approval process, the quality of the lender’s customer service, and what eligibility requirements the lender might have.
Summary
If you’re faced with a financial emergency and you’re looking for an emergency loan, don’t hesitate to contact us; we will connect you to reputable third-party lenders and marketers without inquiring about the nature of your emergency.
Our service is available 24/7, allowing you to inquire about emergency loans and other loan products regardless of whether it’s day or night, weekday or weekend. An online inquiry takes minutes to fill out and contains no hidden fees or charges.
