According to a 2021 survey, 51% of Americans don’t have sufficient emergency savings. It means that when the rainy days come, these individuals don’t have enough money to stay afloat for a few months until their situation recovers. Hence, one of the solutions that these people resort to is emergency loans.
But what exactly is an emergency loan? Is it a good solution for your emergency financial needs? Let’s discuss everything you need to know about emergency loans to help you better understand how this system works and if it’s a good solution for your financial needs.
What Is an Emergency Loan?
An emergency loan is a personal loan to assist customers with short-term financial emergencies. It’s quick and easy to acquire as it aims to disburse the money fast to ensure that the applicant can get hold of the cash and settle their financial needs.
Can You Acquire an Emergency Loan With Bad Credit?
One question that many loan consumers ask about emergency loans is if individuals with bad credit are eligible to acquire an emergency loan. The answer is yes. Many loans for bad credit from reliable lenders like CreditNinja.com are becoming accessible nowadays.
Whether you have a good or bad credit score, you can rest assured that there’s an emergency loan available to help you tend to your needs.
Two Main Types of Emergency Loan
Emergency loans are categorized into two main types: secured and unsecured loans.
A secured loan will require you to provide collateral to back your loan. Collaterals are often in the form of properties like a home, a car, or pieces of jewelry. If you default on your loan, the lender will seize the collateral you pledged during the application.
The collateral is a security for the lender to ensure they can recoup losses from your default loan. Since a secure loan offers security to the lender, it is often much easier to acquire.
On the contrary, unsecured loans aren’t backed with any properties acting as collateral for the loan you are applying for. Instead, the lender will look into your eligibility and capability to repay the loan.
For instance, the lender will base their decision on your credit score, employment, and debt-to-income ratio. It’s purely based on trust. Since an unsecured loan doesn’t offer security to the lender, it is often difficult to qualify.
How to Acquire an Emergency Loan?
Emergency loans come in different forms, such as:
- Car Title
- Cash Advances
- Pawn Shop
The first thing you should do when shopping around for the best emergency loan suitable for your situation is to identify which kind of emergency loan suits you best.
Personal loans are the most popular kind of emergency loan available today. It’s offered by credit unions, banks, and online lenders. A personal loan is an installment loan paid monthly until the loan term ends. This kind of emergency loan is mostly unsecured, with a loan term of over several years.
Interest rates and loan fees of personal loans vary depending on the lender. However, the interest rate the lender will impose on your loan will depend on your credit score, income, and other debts.
The next popular emergency loan option for you is a payday loan. It’s quick and popular among bad credit individuals. This kind of emergency loan is short-term, with only a small amount. However, it’d be best if you remembered that payday loans should be paid back on your next payday schedule.
Car Title Loans
A car title loan is an additional option for consumers seeking quick loans for individuals with poor credit. Car title loans are short-term, small-dollar loans with significant fees and interest rates like payday loans. However, payday loans do not require collateral, whereas automobile title loans do.
Credit Card Cash Advances
Aside from paying for goods and services, credit cards can also be great for acquiring fast cash during emergencies. You can use your credit card like a debit card to acquire cash. Go to the nearest ATM and withdraw cash using your credit card. This way, you can acquire cash when you need it.
Pawn Shop Loans
If you have pieces of jewelry or other valuable items, you might want to go for a pawn shop loan. Pawn Shop loans frequently have cheaper interest rates than other emergency loans. Just remember that if you can’t keep up with the payments, you risk losing the item you pawned.
Where to Get an Emergency Loan?
Various lenders offer emergency loans to consumers with bad or good credit ratings. Below is a list of options to give you an idea of where you can apply for a loan in times of emergency.
- Online lenders
- Credit Unions
- Traditional Banks
- Credit Card Companies, through cash advance
- Payday Lenders
Remember that just because a lending option is offered doesn’t necessarily mean it’s a wise one. Cash advances, for instance, are known to be pricey and might lower your credit score by increasing your credit utilization ratio.
Payday and title loans should be avoided, if possible. According to the CFPB or Consumer Financial Protection Bureau, the average two-week payday loan carried a high APR of almost 400%.
The best option that you should consider when taking out an emergency loan is online lenders or credit unions. These institutions can provide you with a deal that might be better than the ones mentioned earlier, whether it is a low-interest rate, favorable loan terms, or minimal fees.
Safe loan options are better options. However, there are many reasons why a lot of borrowers aren’t eligible for it. Hence, only resort to other lenders if the first option doesn’t work out for you.
Remember that when taking out an emergency loan or any other type of loan, you should still think of its impact in the long run. Therefore, always choose the right option that is highly favorable for you.
Acquire an Emergency Loan When You Need Cash Fast
If you need cash fast, you shouldn’t hesitate to take an emergency loan. There are many kinds of emergency loan offers that you can choose from. Take your time selecting which is best for you and acquire the best emergency loan option.