What Is an Emergency Loan and What Can I Use it For?

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When you need money for an unexpected expense, an emergency loan may be the solution. Some lenders provide emergency loans to borrowers who need funds to cover unplanned costs, such as a car repair or medical emergency. You can get an emergency loan in as little as 24 hours or even the same day — but be sure to avoid predatory lenders.

A closer look at emergency loans

Many borrowers who take out an emergency loan never expect to need one. In fact, 40% of households with incomes of $20,001 to $50,000 have no money saved for emergencies, according to a March 2022 report from the Consumer Financial Protection Bureau. That number increases to 60% for households with incomes of $20,000 or less.

An emergency loan is a type of short-term personal loan that lets you borrow cash when you need it urgently. You may even be able to get loan funds within an hour of approval. You can borrow anywhere from a few hundred dollars to tens of thousands of dollars — sometimes with no eligibility requirements other than proof of employment, a bank account and, in some cases, collateral to secure the loan.

An emergency loan isn’t necessarily the most cost-effective way to borrow money, but if a financial emergency leaves you without other options, Credible can help you compare rates from top lenders, all in one place. You can find the loan that best meets your needs and get prequalified without affecting your credit.

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Types of emergency loans

Emergency loans come in several different forms, including:

  • Personal loans: A personal loan is a secured (requiring collateral) or unsecured loan you repay in monthly installments, with interest. You can get a personal loan from banks, credit unions, or online lenders, but you may need good credit to qualify. Personal loans typically have lower annual percentage rates (APRs) — interest plus any fees — than credit cards.
  • Payday loans: A payday loan is an advance on your next paycheck extended by a payday lender. These are usually small loans ($500 or less) that must be repaid within two to four weeks. Many payday lenders issue loans without checking your credit report or credit score, but they come with sky-high APRs that can total nearly 400%.
  • Title loans: These loans use your vehicle as collateral for the loan — you must give the lender your vehicle’s title to get the loan funds. In addition, lenders typically require you to repay a title loan within 30 days. Because your car secures the loan, you might qualify for a title loan even if you have bad credit. But if you can’t repay the loan, the lender can seize your vehicle.
  • Credit card cash advance: A cash advance lets you draw money against your credit card limit. Cash advances are instant loans you can get by using your credit card at an ATM, just as you use a debit card to withdraw cash from your checking account. Credit card issuers usually charge higher rates on cash advances than on purchases made with the card, and interest on a cash advance starts accruing immediately. You’ll also likely pay a hefty fee to withdraw the money — this could be a percentage of the amount you borrow or a flat fee.

Watch out for predatory lenders

The payday and title lending industries are notorious for engaging in predatory lending practices, which the National Association of Consumer Advocates defines as unfair, deceptive, or abusive loan terms that can trap borrowers in a cycle of debt.

Predatory loans are usually for small amounts, like a few hundred dollars. But they can have outrageous fees, even in states that regulate them. Wyoming, for example, allows payday lenders to charge $30 or 20% of the principal balance per month, according to a report from the National Conference of State Legislatures. But on a small amount of money, this can quickly add up. If you borrow $500 and have a 20% finance charge each month, you’ll pay $100 for the first month alone if you can’t repay your loan on time.

Payday and title loans are usually meant to be repaid in 30 days or less. If you aren’t able to repay the loan on time, the lender may roll the loan over, which means you pay an additional fee to extend your due date. Or, in the case of a title loan, the lender might simply repossess your car.

Carefully review the terms of any payday or title loan before you sign the loan agreement. These loans can trap you in a cycle of debt, and they should be a last resort. If at all possible, avoid borrowing a payday or title loan.

What can I use an emergency loan for?

You can use an emergency loan for anything you want, though many lenders will not approve your application if you intend to use the funds for college-related expenses (like college tuition or student loan repayment).

Common emergency loan uses include:

  • Unforeseen expenses: You can use an emergency loan to pay for a major car repair, home repair, or medical treatment that you can’t afford but can’t put off. Just be sure to check a lender’s minimum and maximum loan amounts — some may not be able to lend as much or as little as you need.
  • Debt payment: If your cash shortage is temporary and you’re in danger of being hit with late fees and penalty APRs on credit cards, an emergency loan can help you avoid them. Just keep in mind that you pay interest on emergency loans, too.
  • Utility bills: If you’re hit with an unexpectedly high utility bill but don’t have the funds to pay it, an emergency loan can prevent vital services from being cut off.

Emergency loans are best for one-time expenses you incur during a temporary shortage of cash. For anything you need to finance over a longer term, look for a low-interest personal loan.

Credible can help you find personal loan lenders that offer emergency loans at fair rates. You can compare several loans to make sure you get the best deal and the fastest funding.

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About the author
Daria Uhlig
Daria Uhlig

Daria Uhlig is a contributor to Credible who covers mortgage and real estate. Her work has appeared in publications like The Motley Fool, USA Today, MSN Money, CNBC, and Yahoo! Finance.

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