Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff.

Key takeaways

  • Emergency loans come in multiple forms, including personal loans and home equity loans. However, they do tend to have higher rates than other loan types.
  • Emergency loans should only be used for time-sensitive expenses that need immediate attention, like unexpected medical bills or car repairs.
  • Before applying for an emergency loan, consider alternative options, like reaching out to a local charity or nonprofit or entering into a payment plan.

An emergency loan can provide much-needed relief if you’re in a financial bind and low on cash. It’s a type of personal loan — typically unsecured — that helps you quickly access cash to cover unexpected expenses, like costly vehicle repairs, hospital repairs, medical or dental bills or other household expenses.

Although they’re a convenient funding source, there are drawbacks to consider before applying, like fees, the possibility for negative credit impact and potentially high rates. In the right situation, an emergency loan can be a lifesaver, but in the wrong scenario, it can be detrimental to your financial health.

Weigh the pros and cons of an emergency loan before applying to make sure it’s the best option for you and your credit situation.

Pros of emergency loans

These benefits can make emergency loans useful to individuals who need funding quickly.

  • Flexibility: Most lenders don’t impose spending restrictions so that you can use the funds for a range of expenses.
  • Online prequalification: You can prequalify online with some lenders and view potential loan offers, including projected terms and monthly payments, without impacting your credit score.
  • Fast funding: Some lenders offer quick approvals and short funding times — often as soon as the next business day.
  • Accessibility: You don’t need perfect credit to get approved for an emergency loan. However, you’ll likely need at least a good score to qualify.

Cons of emergency loans

Despite their flexibility and fast funding times, emergency loans also have disadvantages. Here’s what you need to be aware of before applying.

  • Fees: Some lenders charge origination fees and early repayment penalties. Plus, the lower your credit, the more likely you are to get offered higher fees and interest rates.
  • Small loan amounts: Depending on the lender’s maximum loan amount and how much you get approved for the loan amount you’re offered may not be enough to cover your emergency expense.
  • Credit consequences: 35 percent of your credit score consists of your repayment history. If you fall behind on payments, you risk severe damage to your score.
  • Interest rates: The interest rates can be quite high if you have a low credit score, sometimes even reaching triple digits.

When an emergency loan might be necessary

Emergency loans can help you address financial needs in a crisis. While they’re not recommended for most situations, there are a few instances in which an emergency loan may be helpful.

  • Unexpected home repairs, such as a leaky roof.
  • Car repairs.
  • Dental work.
  • Unexpected travel, such as for a funeral.

How to tell if an emergency loan is right for you

An emergency loan could be ideal if you have good credit and prequalify for a loan with competitive terms. Your monthly payment and the total loan cost should comfortably fit into your budget to protect your long-term credit and overall financial health.

However, if money’s tight and you’ll likely have trouble repaying what you borrow, taking out an emergency loan isn’t a smart financial move. You run the risk of accruing high-interest debt that could take years to pay off. Plus, if you don’t have the funds to make your monthly payments for a certain amount of time, you risk defaulting on your balance, which has a significant credit impact and can even result in a court summons if the debt isn’t repaid.

It might be worth considering an emergency loan, but I’d probably go down some other routes first and would recommend being very mindful of the financial terms

— Ted Rossman, Bankrate senior analyst

Since emergencies pop up and can be stressful, sorting through every financing option may not be possible or the best use of your time. “I worry that some people may miss some important fine print,” Rossman adds, encouraging borrowers to consider the total cost of the loan, including interest accrual and fees.

If the funds aren’t needed immediately and you’re not sure you can afford the monthly payments, consider a more cost-efficient way to cover the expense, like government assistance or a charitable gift. If possible, you could also consider saving up over time to pay for the expenses out-of-pocket. This way, you’ll avoid taking on more debt and potential interest accrual.

Alternatives to an emergency personal loan

Whether you’ve been turned down for an emergency personal loan due to credit issues or would prefer to explore other options before applying, here are some alternatives to consider.

  • Borrow from friends or relatives: Reach out to friends or family members and ask to borrow the cash you need. They may be willing to provide you with a small short-term, low-interest or interest-free loan. Be sure to only borrow what you can comfortably afford to pay back. Also, get the agreement in writing to avoid any confusion.
  • Reach out to a local charity or nonprofit: Call 211 to inquire about financial resources available in your local area. Depending on where you live, you may be eligible for an interest-free loan or grant.
  • Request a payment plan: If you need the funds to repay a lender, creditor or service provider, ask about a payment plan. They may allow you to enter into a payment arrangement that lets you split up the amount you owe and avoid penalties.
  • Apply for a 0 percent APR credit card: If you have good or excellent credit, you could be eligible for a 0 percent APR credit card. These cards do not assess interest on purchases during an introductory period, typically between 12 and 20 months. Be sure to pay the balance in full before the promotional APR period ends, as interest will start accruing, and typically at higher rates than other cards.
  • Get a paycheck advance: Research your employer’s policies and see if there is specific guidance around taking out an advance. If it’s not allowed, or you don’t have a well-established relationship, you can also look into cash advance apps.

The bottom line

Emergency loans can be a viable solution for cash-strapped consumers. They’re easy to apply for, flexible and offer fast funding times. Still, these loan products have downsides, like higher borrowing costs, that should not be overlooked when deciding if they’re a good fit.

Be sure to shop around and check your prequalification offer from at least three lenders. Compare the loan amounts, terms, interest rates, fees and funding times for each loan offer you receive. It’s equally important to evaluate each lender’s reputation and customer service reviews to make an informed decision.

Most importantly, run the numbers to determine if an emergency loan works for your finances or if an alternative, like a paycheck advance, payment plan or a loan from a friend or relative, is a better choice.