In an ideal world, we would all have an emergency fund to dip into when things go wrong. Unfortunately, Statista reports that as many as 70% of Americans have less than $1,000 saved for a rainy day. This can make dealing with an unexpected car breakdown or medical emergency a real problem, and that’s where emergency loans come in.
While emergency credit and loan options often come with an extra cost, they can be a valuable lifeline when used responsibly.
What is an Emergency Loan Vs a Personal Loan?
While an emergency loan and a personal or traditional loan are the same basic product – that is, being a line of credit – they have two key differences: speed and cost. Personal loans are the better choice in the grand scheme of things, because they tend to have lower rates of interest and will cost less in the long-term. However, a personal loan is a lengthier process that often requires direct contact with a bank, application forms, and a waiting period before approval or rejection.
If time is of the essence, this can be a problem. After all, a broken boiler or medical emergency will not wait. Emergency loans come in several forms, including:
- Small personal loans/flexible financing from a third party (such as Elfin Market).
- Payday loans.
- Title loans (e.g., a loan against a car title).
- Credit card advances.
Emergency loans are usually much faster and often advertise same-day approval and credit transfer. What’s more, providers of these loans are more likely to accept those with issues in their credit history. The downside to this speed and ease is usually a higher rate of interest.
The 5 Most Common Reasons People Apply for Emergency Loans
An emergency loan can be used to cover any of the unexpected costs that can come up in day-to-day life. Common reasons for applying include:
1) Unexpected Medical Bills
Accidents at work, within the home, and in daily life are unfortunately common and if you are caught off-guard by medical bills, it can be hard to cover the cost of care (even with insurance). Emergency medical bills are one of the most common reasons that people in the U.S. apply for emergency loans.
2) Consolidation of Debt
Debt is something that as much as three-fifths of the population struggle with, and while taking out a loan to pay debt might make no sense, it can actually be helpful. Emergency loans are frequently undertaken in order to consolidate debts into fewer, more manageable payments. For example, emergency loans are often undertaken to clear and consolidate vehicle, utility, and credit card debt and secure a single rate of interest.
3) Vehicle Breakdown or Finance
Having a vehicle is no longer a luxury; for millions of Americans, their car is their main mode of transport to and from work, the grocery store, and school. A sudden vehicle breakdown or the need for a new vehicle are some of the most common reasons for seeking emergency loans for this reason. After all, a car often represents the ability to work, find basic amenities, and simply live.
4) Funeral Expenses
A sudden death is never welcome, and financial strain only compounds the stress that surrounds the grieving process. Covering the cost of funeral expenses is, sadly, a common reason for emergency loan applications. However, some funeral homes offer incremental payments and, in these cases, emergency loans may be used to cover a deposit or initial lump sum payment.
5) Emergency Home Repairs
Whether it’s plumbing problems or structural damage, home repair ranks high as a reason for seeking an emergency loan. In many cases, the loan is a small amount to cover home insurance excesses, but in some cases, individuals borrow larger amounts to cover serious issues or even to cover home renovation, as well as repairs.
If you find that you need financial help to meet unexpected costs, a reputable emergency loan provider could give you the boost you need. Here are some great quick loan providers, assessed by SFGate and found to be reputable.
Remember, however, that emergency funding often comes with a bigger overall cost and that some emergency lenders enforce a shorter repayment schedule. It is best to assess multiple options and, if possible, seek financial advice before taking out an emergency loan.