The unexpected happens to everyone and can include:
And sometimes the unexpected comes at an alarming price. An emergency loan can help you deal with a sudden and real need for cash.
What is an emergency loan?
An emergency loan is an installment loan that you get on a short-term basis to cover an unforeseen emergency expense. It can be a secured loan or an unsecured loan.
Emergency loans can be for personal or business use. Emergency personal loans are generally for a relatively small amount. Sometimes emergency business loans are more important.
Either way, an emergency loan can help you bridge the gap between an urgent situation and stable finances.
Types of emergency loans
Here are the most common loan options for emergencies.
Personal loan without guarantee
An unsecured loan is for a person with verifiable income who can meet the minimum credit score and debt-to-income ratio requirements of the lender. The length of the loan varies.
Secure personal loan
A secured loan is for a borrower who has a valuable asset that they can use as collateral, such as a certificate of deposit (CD) account.
Normally this loan application requires proof of income because even with assets you have to show that you can afford the monthly payment. The length of the loan varies.
If you have verifiable income and recent pay stubs, a payday loan is available without a credit check.
A payday loan is a short term loan with very high fees and is known as a predatory loan. Many payday loan borrowers find themselves trapped in a debt cycle that is difficult to break. The average payday loan borrower renews their loan eight times. The loan term is generally between one and four weeks.
Alternative Payday Loan (PAL)
If you have a job and are a member of a participating credit union, you may be eligible for an Alternative Payday Loan (ALP).
Not all credit unions offer it, but those that cap interest at 28%, which is a fraction of the cost of an in-store payday loan. The loan term is usually a few weeks or less.
A title loan is for someone who owns a car, truck, motorcycle, recreational vehicle or boat that they are willing to offer as collateral for the loan.
Like predatory loans, this loan option usually has very high fees and a short loan repayment period. If you do not repay the loan, you give up your right to the vehicle. The loan term is usually one to six months.
Cash advance by credit card
If you have a credit card and it is not at the maximum, you may be able to request a cash advance on it.
Many credit cards allow you to borrow money. The cash advance limit is often less than the credit limit for purchases. You may pay a fee to get the cash advance, and there is no interest-free grace period. You will owe interest from the day you withdraw the money.
The interest rate on cash advances is often higher than the interest rate on purchases, but it is lower than that of most payday or security loans. The loan term is the time it takes you to pay off the balance.
Small Business Administration (SBA) Disaster Loan
Small Business Administration (SBA) disaster loans are intended for homeowners and tenants in addition to business owners.
The Small Business Administration provides personal loans and business loans to people who need help recovering from declared disasters, including civil unrest and major acts of a nature. The term of the loan is usually several years or more.
Specialty loan (such as dental or veterinarian)
Health care and veterinary care loans are for people who have expenses related to things like dental emergencies or animal care.
Your supplier can even give you a brochure with information. These are generally deferred interest loans. This means that if you pay off the balance on time, you could pay little or no interest. But if you don’t, you’ll owe interest on the full amount (even the part you’ve already paid off).
This loan could also be available for the expenses of medical care including elective procedures. The loan term is generally six months to three years.
SBA Economic Disaster Loan (EIDL)
Business owners can apply for Economic Disaster Loans (EIDL). It was a popular form of financial relief from the hardships of COVID.
The Small Business Administration’s EIDL is for small businesses and nonprofits that experience a temporary loss of income. The term of the loan is usually several years or more.
Emergency private loan for business
Business owners can apply for emergency business loans from private lenders.
Many online and physical lenders offer emergency business loans. This type of loan can be based on pending customer invoices, forecasted future sales, or the business owner’s credit rating. The length of the loan varies.
How to get an emergency loan?
The path to the right emergency loan program is different depending on why you need it and your creditworthiness. The better your credit score, the less you will pay for a loan. Also, loans for people with bad credit or no credit history tend to have lower maximum loan amounts. Conversely, emergency business loans can be in five, six or even seven digit amounts.