An emergency loan is a broad term that pertains to some short-term loans. There are different types of emergency loans; therefore, before taking one out, it’s a good idea to understand how each works and the terms and conditions that come along with them.
Personal loans
A personal loan can act as a type of emergency loan that allows you access to a certain amount of cash. A lot of personal loans are unsecured, but some lenders offer secured loans that are backed by collateral. These loans are usually offered by banks, credit unions, and online lenders. Personal loans are also known as installment loans, meaning that they’re paid back over a specific period of time.
For personal loans, interest rates and fees can vary widely from lender to lender, and your rate is typically based on your credit score, income, and debt. Disbursement times generally range from immediately on the day you apply to multiple business days after your initial application. You can use a personal loan for nearly anything, from debt consolidation to covering an emergency expense. But, it’s important to research the terms offered by different lenders to guarantee you’re picking the right loan for your situation.
Payday loans
A payday loan is another type of installment loan used for emergencies with a very short term, usually only a couple of weeks to a month. Payday lenders will advertise themselves as a good option for those with poor credit. These lenders will give you money on the spot with the agreement that you will repay them with your next paycheck. According to the Consumer Financial Protection Bureau, the lender ultimately sets the interest rate or fee you’ll pay, some being as high as 400%.
The lender might also ask you to write a dated check for the full amount you owe. Then, they will cash the check on that exact date, no matter how much money is in your account. These types of loans are best for borrowers who need small amounts of money and can repay the loan in full within a short time period.
Credit card cash advances
If you already have a credit card, you can get funds quickly for an emergency with a cash advance, which is considered a type of emergency loan. Many credit cards offer a cash advance feature that lets you access the cash from an ATM or bank. Then, the cash advance is rolled into your regular credit card payment.
Credit card cash advances typically have higher interest rates than your card’s current annual percentage rate (APR). And since the cash advance is linked to your existing card’s credit limit, it doesn’t require an additional credit check. This option is best for cardholders who already have active credit cards in good standing and need to borrow smaller amounts.
