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.

Depending on your credit situation, an alternative financing option could be a better fit for your current and future financial health. Weigh the pros and cons of an emergency loan before applying to make sure it’s the best option for you.

Pros of emergency loans

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

  • Flexibility: Most lenders don’t impose spending restrictions, so you can use the funds for any legal expense.
  • Online prequalification: You can get prequalified 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; although 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 come with their share of disadvantages. Here’s what you need to be aware of before signing on the dotted line.

  • 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.
  • 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 are often higher than you’d get with a traditional loan product, especially if you have a lower credit score.

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, as well as 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 down the road. 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.

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, or you’ll be charged interest.

Get a paycheck advance: Ask your employer for a paycheck advance to get the cash you need. This approach typically only works if you’ve been employed for some time. Still, it’s worth asking your employer, even if you’re relatively new to the job.

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 get at least three loan quotes. Compare the loan amounts, terms, interest rates, fees and funding times for each loan offer you receive. It’s equally important to evaluate the reputation of each lender 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.