Home Articles 5 Types of Emergency Loans You Should Know About

5 Types of Emergency Loans You Should Know About

https://www.pexels.com/photo/person-holding-us-dollar-bills-4968654/

Suppose you have an unexpected expense that is in need of immediate cash and you lack sufficient savings to remedy the problem. In that case, you might be thinking of applying for an emergency loan.

Emergency loans are any loans available for a borrower even in short notice for different purposes. However, it would help if you kept in mind that quick access to funds may come with higher risks than traditional loans.

Types of Emergency Loans

Emergency loans can come in several different forms. However, the type of loan that you may qualify for tends to depend on your credit status largely.

Below are the options you may want to consider:

  • Unsecured Personal Loans

Unsecured personal loans are installment loans that don’t require the borrower to pledge any collateral. This type of loan is flexible for emergencies. Moreover, unsecured personal loans have a fixed interest rate and a specific period set for you to comply in paying back the borrowed amount.

Since pledging collateral is not needed in an unsecured personal loan, lenders tend to look at the borrower’s creditworthiness in determining whether or not to approve the loan application. This type of loan is riskier for the lenders than secured personal loans backed up by collateral. Hence, they tend to come with higher rates, higher fees, and require a higher credit score.

  • Credit Card Cash Advances

If you already have an existing account, credit card cash advances are quick and easy. You may go to a bank branch or an ATM to get money immediately. It is best to be careful in taking out credit card advances. The cash advance you are planning to get is based on the available balance of your credit card.

Credit card companies usually charge a higher interest rate for cash advances as compared to your regular purchases. Furthermore, interest rates start accruing immediately after the cash advance since there is no grace period.

  • Payday Loans

Payday loans offer small loan amounts that are usually under $500. They have become popular since they are easy to qualify for. Moreover, most payday loan lenders do not look at your credit status to let you borrow money.

Payday loans charge borrowers with higher interest rates. Also, this type of loan often has a short repayment term that usually runs for about two weeks. This means that you should be able to pay back the debt in that little time.

  • Pawnshop Loans

To qualify for a pawnshop loan, you need to have a valuable item to secure the loan. The item will be checked and will serve as collateral. After being accepted for the loan, you will receive the cash and a pawn ticket for your valuable item.

Pawnshop loans are cheaper than title loans and payday loans when you need quick cash. Moreover, since you pledged a valuable item as collateral, that means if you fail to repay the loan amount, the pawnshop gets to keep the item.

  • Car Title Loans

Car title loans don’t involve credit checks. You can use your car title as leverage for a short-term loan. This also means that there is a great chance that the lender will seize your car if you fail to pay the loan.

Applying for an Emergency Loan

Before you apply for an emergency loan, you might want to consider following these steps:

Check Your Credit Score

As mentioned earlier, emergency loans tend to depend on your credit score largely. A good credit score can help you get low-interest rates and better loan terms.

However, if you have a low credit score, there’s no need to worry because some lenders offer bad credit short term loans. Hence, it is essential to check your credit score to know the possibilities you may encounter in applying for any loan.

Shop Around

It is wise to shop around for lenders. You should compare the interest rates and fees as well as the loan terms that lenders offer. Moreover, you should choose the lender that can help you save more money.

Consider Alternatives

In order to help you decide whether to apply for an emergency loan or not, it is best to look into other options. These alternatives might help you out in your situation than emergency loans.

Alternatives for emergency loans may include but are not limited to low-interest credit cards, medical bill payment plans, student loan payment restructuring, and home equity line of credit.

Emergency loans tend to carry higher rates and fees. However, they can come in handy for emergencies. If you are not willing to take risks, you may want to search for other alternatives.