Bankrate’s latest 2021 Emergency Savings Survey found that 51 percent of Americans don’t have enough money saved to cover three months worth of expenses. The same survey found that 1 in 4 respondents don’t have any emergency savings at all, leaving them financially vulnerable in the event of an unexpected job loss or medical bill.

One option for those with insufficient rainy day savings is an emergency loan. This funding alternative covers your expenses in case of a large, unforeseen expense. There are a few kinds of emergency loans, but they almost always come with very short terms (usually weeks or months) and high interest rates and fees.

While you should try to plan your finances so that you have an emergency fund for unexpected costs, that may not always be possible. Sometimes emergencies come up when you least expect them, and an emergency loan might be the only thing available to fend off an even bigger problem.

Why might you need an emergency loan?

An emergency loan usually comes with a short term, sometimes as little as a week or two. They’re also generally offered to people with less-than-perfect credit. The combination of those two factors means that an emergency loan usually has very high interest rates and fees.

If you can, it’s a good idea to put extra cash into an emergency fund before you have an emergency. But if you’re in a tight situation and don’t have an emergency fund, there’s not much you can do about it at that moment. Some situations that might require an emergency loan include:

  • Your car breaks down, and if it doesn’t get fixed, you won’t be able to get to your job.
  • Your utilities (gas, electric and water) are in danger of being shut off.
  • There is a problem with your paycheck and you aren’t getting paid when you expected.

Types of emergency loans

An emergency loan does not have a strict definition; it’s a catchall for short-term loans that are meant to be used only in emergencies. Here are a few types of loans that could be considered emergency loans.

Personal loans

A personal loan is an unsecured loan that allows you access to a fixed amount of cash without any collateral. You then pay it back in fixed monthly installments over the course of the loan term.

Unlike many other types of emergency loans, personal loans usually have terms of a few months to several years. You can generally use a personal loan for nearly anything you want, which can make it useful for an array of emergencies.

Credit card cash advances

In most cases, you use a credit card to make payments directly to a merchant. While that is useful for making purchases at places that accept credit cards, it doesn’t help you if you need actual cash. In that case, you can get a cash advance from your credit card.

Be aware though that many credit cards charge fees for cash advances AND the interest starts accumulating as soon as you get your cash, even before your next statement.

Payday loans

A payday loan is an emergency loan with a very short term, usually only a week or two. Payday lenders typically market their loans as being available even if you have bad credit. Payday lenders will give you money now with the promise that you will repay them with your next paycheck. These loans typically come with outrageous interest rates (up to 400 percent) and should be avoided at all costs.

Car title loan

A car title loan is similar to a payday loan, but instead of being unsecured, it is secured by the title to your car or other vehicle. Using your vehicle as collateral can help reduce the fees and interest you pay since the loan is secured.

The downside of a car title loan is that if you don’t pay the loan, you may lose your vehicle. This is an incredible risk and should be avoided unless there are no other options.

How to get an emergency loan

The first thing to do to get an emergency loan is to decide what kind of loan you’re looking for. Depending on your credit score and financial situation, you might consider a personal loan.

Different personal loan lenders offer loans to people with all types of credit scores. Interest rates and fees will vary based on your credit profile and the amount of money you’re looking for. Many loans can be funded in as little as a few days.

Here’s how to get an emergency loan from a personal loan lender:

  1. Gather your documents: You’ll generally need items such as your identification, Social Security number and proof of income and employment.
  2. Compare lenders: When evaluating lenders, consider funding times and compare rate quotes by prequalifying, which shows you what you could qualify for before you submit an application. Also, read reviews from both past and current customers to get a feel for the lender’s reputation.
  3. Fill out the application: Many lenders have quick online applications and give approval decisions on the same day you apply.

Emergency loan alternatives

Here are a couple alternatives to an emergency loan that you might consider:

  • Borrowing from the equity in your home: A home equity loan or a home equity line of credit (HELOC) is a loan backed by the equity in your home. These loans usually take a few weeks to set up, so they’re best for access to funds in the longer term.
  • Using a credit card: If the emergency situation you have can be paid for with a credit card, that could be a faster alternative to an emergency loan.
  • Asking friends and family: If you have friends or family with sufficient funds, they may be able to help you out. Set clear expectations about how the money will be repaid, or you may damage your relationship.

How to determine if you need an emergency loan or can wait

As its name suggests, an emergency loan is meant for expenses that can’t be pushed back or rescheduled for a later time. If you have insufficient emergency savings and need to fill the gap with a loan — or don’t have savings to draw on at all — an emergency loan might be the only viable solution.

Only you can decide whether an emergency loan is right for your situation. Some considerations to make when weighing this decision are:

  • Is the expense urgent? In other words, ask yourself if it’s so time-sensitive that delaying the expense to save up the money isn’t realistic.
  • Is the expense important? The expense should also be important. For example, although a department store holiday sale might be a time-sensitive event, buying discounted holiday gifts likely isn’t important enough to take out an emergency loan.
  • Can you afford the loan’s monthly payment? Take into account the monthly principal amount, interest charges, and fees, and compare this amount against your existing budget.

If the scenario you’re facing doesn’t check off these three questions, you might want to hold off on getting an emergency loan. Instead, consider building up your savings fund or going through an alternative option.

Where to get an emergency loan

There’s no shortage of emergency loan options to choose from. Here are some lenders that can assist with a personal loan when you’re in a financial bind. These options were selected based on fast time for approval and funding.

Lender Time to approval Time to funding Loan amount Credit score requirement
Avant  Same-day approval As soon as one business day $2,000 – $35,000 580
Best Egg Same-day approval As soon as one business day $2,000 – $50,000 600
Upgrade Same-day approval As soon as one day $1,000 – $50,000 560
Upstart Same-day approval As soon as one business day $1,000 – $50,000 Not specified

The bottom line

An emergency loan is a catchall for a loan that is targeted to people experiencing short-term financial emergencies. Emergency loans often have very short terms and high interest rates and fees because lenders know that if you’re in an emergency, you may not have a lot of options.

Try to arrange your finances before you experience an emergency so that you’re prepared. Starting an emergency fund is a great way to put yourself on the road to a solid financial future.

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