When life happens: emergency loans that make sense

By Miranda Marquit

Reviewed by Kimberly Rotter

May 05, 2023

Read time: 5 min

Mother is holding her beloved daughter.

Key takeaways:

  • An emergency loan can help you get cash quickly when you really need it.

  • Use an emergency loan for a variety of purposes, including repairs, buying new appliances, and other unexpected needs.

  • An emergency loan can help you avoid relying on higher-interest credit cards to pay for urgent expenses. 

Life can (and does) throw curveballs. Many of us have been in a situation where we need a little extra help. If you're struggling with an unexpected expense, an emergency loan can help you get through difficult times. Let's take a look at how an emergency loan might be the right choice for you.  

What is an emergency loan?

An emergency loan is usually a personal loan. Generally, emergency loans are unsecured, which means you don’t have to pledge an asset, like your car or house, to guarantee the loan. Also, some lenders offer fast funding, with the ability to get your money as quickly as the next business day.

An unsecured emergency loan can be used for a variety of purposes, depending on your needs. Some eligible uses for an emergency loan include:

  • Home or car repairs

  • Replacing a broken appliance

  • Covering medical debt

  • Bridging a short-term income need

With the help of an emergency loan, you might be able to avoid using your credit card or dipping into savings. The loan can smooth your cash flow during a tough time without the need for you to sacrifice other financial goals.

An emergency loan usually comes with a fixed interest rate that won’t change for the life of the loan. The payment amount won’t change. Your loan will be set for a fixed amount of time, so you’ll know exactly when the debt will be paid off. 

Pro tip: The Small Business Administration offers emergency loans to residents and businesses affected by declared disasters. 

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How much can I borrow for an emergency?

Lenders have different criteria for getting an emergency loan. However, it's common to be able to borrow between $5,000 and $50,000 to help you through an emergency. Some lenders offer smaller or bigger loans.

If you're in the middle of an emergency, get a handle on how much you need to get through it. Consider borrowing what you need, and perhaps a small amount more for a cushion. Getting enough is important since you don't want to have to apply for another loan later.

When is it a good idea to use a personal loan for emergencies?

Deciding to use a personal loan for emergencies depends on a few factors.

A personal loan might be a better option than a high-interest credit card for emergencies. Generally, personal loan rates are lower than credit card rates, which means you'll pay less in interest with a personal loan. Also, the fixed rate can protect you from having to make higher payments later if variable credit card interest rates rise.

When covering a temporary emergency, a personal loan can smooth out cash flow. If you know that you can handle the payments without burdening your budget, a personal loan might make sense. Once the emergency has passed, you can choose to pay down your personal emergency loan faster.

Even if you have ‌money set aside, an emergency loan might make sense. Consider how much of your savings you want to use for this emergency and whether it makes sense to get a personal loan to preserve some of your cash. Maybe a hybrid approach, including some savings plus a personal loan, is right for you.

Think about your personal situation and your financial goals. Then decide if an emergency loan can help you cover an unexpected cost while still keeping you on track with your other financial goals.

Read more: Hardship loans

5 important personal loan features to compare

As you consider personal loan offers to handle your emergency, review the following features:

  • Cost. Learn how much the debt will cost you. Often, personal loans have lower rates than credit cards, but most loans also come with lender fees. Ask about all fees for any option you’re looking at.

  • Speed. In an emergency, you need cash fast. You might be able to get your money as quickly as the next business day. Make sure the lender can get the money to you when needed.

  • Limits. Check that you can borrow what you need. If you need a loan that’s smaller or larger than what the lender can offer with a personal loan, you might need to look at other options. If you’re a homeowner, a home equity loan might have a higher limit. If you need a small loan and you expect to repay the loan quickly, a credit card might work.

  • Terms. Look for flexible payment terms. Many personal loans allow you to choose loan terms of between two and five years. A longer payment term might mean a smaller monthly payment that better fits your budget, but you’ll pay more in interest compared to a shorter loan term.

  • Penalties. Understand whether there are prepayment penalties. There’s a chance that you might want to pay off your loan ahead of schedule once you resolve your emergency.

Before applying for a personal loan, review your situation. Understand the nature of the emergency and how much you need. Think about how much you can afford to pay each month. Don't forget to have a plan to pay off the debt, whether you decide to stick with the payment plan or pay it off early.

Author - Miranda Marquit

Miranda Marquit is an award-winning freelance writer and podcaster who has covered various financial topics since 2006. Her work has appeared in numerous media outlets, and she is frequently asked to host workshops and appear on panels on topics related to financial wellness. She is the co-host of the Money Talks News podcast and a consumer finance advocate and spokesperson for moving hub HireAHelper.

kim rotter 2022 2

Kimberly is Achieve’s senior editor. She is a financial counselor accredited by the Association for Financial Counseling & Planning Education®, and a mortgage expert for The Motley Fool. She owns and manages a 350-writer content agency.

Frequently asked questions

Secured loans are often easier to qualify for than unsecured loans. With a secured loan, you’re borrowing against something of value. For example, when you get a home equity loan, you pledge your home to the lender as a guarantee that you’ll repay the loan. This lowers the lender’s risk, which means they might be more flexible about things like your credit score.

If you’re comparing personal loans, it may be easier to qualify for smaller loans since you don’t need as much income to cover the monthly payments. 

Most personal loans require a credit score of at least 620, but there are some lenders out there that specialize in making loans to people with lower credit scores.

A cash advance app offers you the ability to access your pay early. You connect your bank account to the app, and the app provides you a way to get a small amount of money deposited into your account. You’ll repay the loan on your next payday. 

Cash advance apps can be very helpful in an emergency, but they need to be set up in advance. 

If you have bad credit, one option is to find a peer-to-peer lender online. These are not banks. Investors fund the loans. So they might approve you even if a bank turns you down. There are also lenders that advertise bad credit loans. 

Another option is a secured loan if you have something valuable that you can borrow against, like an investment account. 

You may be tempted to borrow against your car with a title loan, but these usually come with very bad terms. It’s not a good idea unless you need the money for car repairs and the interest rate is comparable to what you’d pay on a credit card. 

Finally, if you already have a credit card, you might be able to get a cash advance. 

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