What is an emergency loan?

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An emergency loan is a loan that covers your expenses in case of an emergency. 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 on personal loans will vary based on your credit profile and the amount of money you’re looking for. Many personal 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: The amount of time it takes to get money is important in an emergency, but be sure to compare rates and terms from multiple lenders. You can do this by prequalifying, which shows you what you could qualify for before you submit an application.
  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.

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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Written by
Dan Miller
Points and Miles Expert Contributor
Dan Miller is a contributing writer for Bankrate. Dan writes about loans, home equity and debt management.
Edited by
Associate loans editor