A survey by the TIAA Institute in 2021 found that 30% of Americans couldn’t pay for an unplanned $2,000 expense in a month. Black and Hispanic Americans are more affected by long-standing economic inequalities. 41% of Black Americans and 40% from Hispanic Americans said they would not be able to pay the $2,000 expense. This is in contrast to 27% of white Americans.
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What is an emergency loan?
Personal loans for emergency expenses are available. These loans can be used to cover unexpected expenses such as funeral costs, medical bills, and urgent repairs. You won’t be able to wait for your loan disbursement to cover emergency expenses. Instead, look for lenders who offer fast loan disbursement.
You have two options for emergency loans: unsecured or secured. Secured loans require collateral, which can be a car or any other vehicle. Unsecured loans can be granted based only on your creditworthiness and do not require collateral.
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6 Types Of Emergency Loans
There are many types of emergency loans available, from traditional installment loans to predatory loans that have high interest rates. Learn about the differences between each type of loan and what fees you can expect before taking out one.
- Personal loans
Personal loans can be offered by credit unions and online lenders. They are installment loans that are repayable in small amounts over a time period. These loans are usually unsecured and are repayable over many years. While interest rates and fees may vary from one lender to another, your rate will be based on your credit score, income and any other debts you might have. The time it takes to get your money can vary from the day you apply to several days after that. Compare rates from different personal loan lenders to get the best deal.
- Payday loans
Payday loans are often used by people who need short-term loans to cover bad credit. Payday loans are short-term loans that can be used for small amounts. Kim Cole, community engagement manager at Navicore Solutions, a non profit credit counseling agency, says that “what we typically see is between $300 and $1,000.”
Cole states that the fees and interest rates are where these loans can get ugly. Payday loans can lead to a vicious cycle of debt, with APRs as high as 400%. Cole says that payday loans are “probably the most expensive and least consumer-friendly product on the market.”
- Auto Title Loans
A car title loan is another option for those looking for fast loans for poor credit. Car title loans are similar to payday loans but offer short-term loans with low interest rates and fees. Payday loans are secured, but car title loans are secured by the vehicle’s title.
Arevalo warns that if you default on your title loan, you could lose your car and title. It’s your vehicle, your means of getting to work or your doctor’s appointments. He adds that there is always risk.
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- Cash Advances
A cash advance is a quick way to get funds if you have an existing creditcard. This method allows you to use your credit card to withdraw cash at your bank or ATM. The cash advance can be repaid as part of your credit-card payment.
Keep in mind, however, that cash advances are usually charged at a higher rate by credit card companies than purchases. A cash advance fee is usually a percentage of the amount used.
Cole says that “Credit cards cash advances” are not her first choice. Cole says that a cash advance or credit card at 25% is better than a payday loan at 400%.
- Payday Loans Alternatives
A payday alternative loan (PAL) may be available if you have an emergency and are unable to pay predatory payday loans.
Credit unions offer PALs to their members to help them get cash quickly and avoid the need for payday loans. The loan can be borrowed between $200 and $1,000, and you have up to six months for repayment. Federal credit unions cannot charge PALs more than 28% according to the National Credit Union Administration (NCUA). Although it is still quite high, it is significantly lower than what you would get with a car title loan or payday loan.
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- Pawn Shop Loans
You can use your items as collateral at a pawnshop. You can use anything from jewelry to gaming systems to secure a loan. You will receive cash from the pawn shop in exchange for the item. If you pay the loan on time, the item will be returned to you. The pawn shop will keep the item if you don’t pay it back by the due date and may resell it to make more money.
Pawnshop loans often have lower interest rates than other emergency loans. Paying the monthly payments on pawnshop loans can cause you to lose the item. Cole says that while pawn shops are not something I would recommend, they aren’t as bad as payday loans or car title loans. A pawn loan will not get you the actual value of your item. She says that the pawn market is much more regulated than other predatory lending.