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Do you have the funds to cover an unexpected financial emergency? A recent Bankrate survey found that just 44% of Americans can afford a $1,000 surprise bill. If you can relate, it can be tempting to resort to high-interest credit cards or borrow the funds from friends or relatives. But a personal loan might be a better option.
You can get the cash you need quickly, and most lenders simplify the application process by allowing you to apply online and receive a quick decision. Furthermore, many personal loans come with flexible terms and monthly payments that won’t stretch your budget too thin.
Why are personal loans good for emergencies?
Personal loans are great for emergency expenses because of their flexibility. Whether your basement floods or you lose your job and need cash to cover bills, an emergency loan can be a real lifesaver. They’re far more affordable than payday loans and credit cards that often have sky-high interest rates and exorbitant fees. They also have other advantages.
When you have an unforeseen expense, you may need to pay for it right away. If the engine in your car broke, for example, you’d want to fix it as soon as possible since you depend on your car to get around.
Depending on the lender, you may apply for a personal loan online quickly from the comfort of your own home and receive a quick or even instant decision. Upon approval, you may be able to get the money that same day, within 24 hours or in a few days.
Low interest rates
When you compare personal loans for emergencies to other options, you’ll find that they come with low interest rates. The higher your credit score, the lower the interest rate you’ll be able to secure. A low interest rate can save you thousands of dollars on the overall cost of your loan.
If you don’t have the best credit yet need a personal loan for an emergency, don’t worry. Many online lenders have more lenient requirements than other financial institutions and may also look at factors like your income and employment history when deciding whether to approve you for a loan and what rate.
Personal loans also come with flexible repayment terms. Most lenders offer loan terms between one and five years, which is beneficial for a few reasons.
You’ll likely get an affordable monthly payment that works for your budget, especially if you get a competitive interest rate. And you won’t pay a fortune in interest like you would with a credit card since it’s already factored into the monthly payment when you take out a personal loan.
What can I use emergency loans for?
The most common uses for emergency loans include:
- Medical bills: If you or a loved one has to go to the emergency room, for example, and your insurance policy doesn’t cover the trip in full, an emergency loan can cover the out-of-pocket costs. Depending on your insurance policy, out-of-pocket healthcare costs may be anywhere from 10% to 100% of the cost of your service. They can quickly add up to thousands or tens of thousands of dollars or more.
- Car repairs: No matter what type of car you drive or how new it is, there’s a chance it will require a repair at some point in time. An emergency loan may pay for a simple repair such as new brakes or a more complex repair such as a new transmission. According to AAA, regular repair costs are usually between $500 and $600 or more.
- Home repairs: A leaky faucet, a running toilet, a broken furnace and cracked siding are all examples of issues you may face as a homeowner. Fortunately, an emergency loan can help you keep your home in optimal shape when systems break down. The cost of home repairs varies greatly but HomeAdvisor estimates that they range from $3,977 to $22,258.
- Everyday bills: If you lose your job, get your hours cut, or are unable to work for any reason, you may need to take out an emergency loan to pay for your mortgage or rent, utilities, groceries and other bills. While monthly bills depend on a number of factors including your family size and location, the average American family spends $1,889 per month on their household bills.
Where can I get emergency loans?
Emergency loans are offered by credit unions, banks and online lenders. Here’s what you should know about each option to decide which is best:
- Credit unions: Credit unions may lend you money even if you have fair or poor credit. The caveat is that you must be a member of a credit union to qualify for its products and services.
- Banks: If you apply for an emergency loan from a traditional bank, you’ll likely have to meet higher credit score or income requirements. Also, you may not get the funds as quickly as you need them.
- Online lenders: Online lenders can process your application entirely online and get you the money you need quickly. Most also allow you to prequalify so you can find out what loan rates and terms you could qualify for before you apply. This can help you avoid a hard credit check that may take a toll on your credit.
The bottom line
While no one wants to go into debt following an emergency, personal loans are a good alternative to credit cards or just letting the bills pile up.
If you’re facing an immediate financial need, take a few minutes to compare loans from lenders known for quick approvals, then apply to the one that best meets your needs. Once you’ve paid your immediate bills, you can start coming up with a plan for paying off your new loan. You should also start thinking about building an emergency fund to avoid similar issues in the future.