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When you need money in a crisis — to pay for car repairs, an overdue bill or a trip to the emergency room — you may not take time to think about your borrowing options.
But carefully considering how and from whom you borrow could save you money and keep your debt under control. An emergency loan from a reputable lender can be a fast way to get money, as long as you understand how these loans work and how they compare with alternative options.
What is an emergency loan?
An emergency loan is a type of loan that can be accessed quickly to cover unexpected expenses. Personal loans that cap annual percentage rates at 36% are more affordable and safer types of emergency loans than high-interest, short-term loans.
Personal loans are often unsecured, which means they don’t require collateral. They have fixed interest rates and monthly payments that make budgeting predictable, and terms from several months to a few years.
An emergency loan doesn’t have to be tied to a specific purpose, so it can be used for medical expenses, car repairs or other financial surprises.
» MORE: Compare emergency loans
Where can I get money in an emergency?
There are three main options to go to when you want to apply for an emergency loan:
Reputable online lenders.
Even in an emergency, it's a good idea to research different lenders to find the lowest interest rates. That may be at your local bank or a credit union where you already have a relationship.
Online lenders can be a convenient source, and many let you pre-qualify to see your estimated interest rate and monthly payment without impacting your credit score.
» MORE: Where to get a personal loan
Can I get an emergency loan?
To get an emergency loan, lenders typically have minimum credit score and maximum debt-to-income ratio requirements. Bad-credit borrowers may qualify, but borrowers with good or excellent credit (690 FICO or better) receive the lowest rates.
You’ll be asked to submit an application and provide your identity, income and current debt details. The lender will then check your credit score and history before deciding whether you qualify. If so, the lender will deposit the loan funds into your bank account. Some online lenders can fund a loan the same day or next day after approval.
Emergency loans for bad credit
Borrowers with bad credit (FICO scores of 629 or below) may qualify for personal loans in an emergency, but you may need to shop around to find the right lender or add a co-borrower to help your application.
Online lenders and credit unions typically offer lower rates to bad-credit borrowers. Online lenders also provide fast funding and do not require membership like a credit union. Some online lenders, including Upstart and Universal Credit specifically support borrowers with low credit scores.
Adding a co-borrower or co-signer with stronger credit and higher income can help an application, and some lenders may offer the option of a secured loan backed by an asset like a savings account or vehicle.
Questions to ask before borrowing
Taking an emergency loan can solve a short-term need, but it may have longer financial consequences. Ask yourself the following questions before applying for an emergency loan.
1. What are my other options?
Consider all options to get cash fast before turning to a lender, including dipping into your savings, borrowing from friends or family or asking a community organization for short-term assistance. Another option may be asking your employer or using an app to get a cash advance on your paycheck.
2. How much can I afford to borrow?
If you decide to borrow from a lender, first take a snapshot of your current cash flow and factor in the impact of a monthly loan payment.
Check your most recent pay stubs to determine your average income, then add up your monthly bills. The difference between your income and expenses is what you have to put toward a loan. You may need to cut a few expenses or lower your loan amount to make room for the monthly payments.
Use a personal loan calculator to estimate monthly loan payments based on your credit score.
3. Can I trust this lender?
Researching lenders before applying for a loan can help you make an informed decision and build trust. Reputable lenders look at your credit score, credit report and the ratio of your debt to income to see if you can repay the loan.
Financial experts often recommend starting with a local credit union or bank for a loan, because you may already have a trusted relationship. Many credit unions offer emergency loans as low as $250, and some federal credit unions offer payday alternative loans that carry maximum APRs of 28%.
If you decide to go with an online lender, it's a good idea to check reviews and ratings for the loan company, including from organizations like the Better Business Bureau.
4. What will this loan truly cost?
The annual percentage rate, or APR, is the sum of the loan’s interest rate and any upfront fees from the lender. You can use the APR to compare the cost of loans with different lenders. Most financial experts agree that an affordable personal loan has a maximum APR of 36%. As always, it is best to shop around for rates and do your research so you find the best loan for you.