Although everyone rebuilding their credit knows to establish an emergency fund for unexpected expenses, even a well-stocked fund can’t cover every emergency. Sometimes, your needs may simply outweigh your means, no matter how well you plan. Whether your car has broken down or you have an expensive medical bill, when you have bad credit you might wonder if you can get an emergency loan.
A financial emergency can be twice as devastating for those with poor credit, as getting an emergency loan will often be much harder than it would be for good crediting consumers. Fortunately, you may still have a number of emergency lending options. Although there are companies that market loans to people with bad credit, you are going to want to go ahead with caution. Many emergency loans can be extremely expensive and potentially get you caught in a debt cycle.
We’ll break down some bad credit emergency loan options and some alternatives that you might want to consider.
Emergency loans are money from a lender which can be deposited into your bank account quickly. The period may be as limited as a couple of hours, or the next business day.
An emergency cash loan is a short-term online loan which you can use to cover an unexpected expense or emergency. Such short-term loans have a high interest rate and usually repayable within 30 days, as well as taking out an installment loan that can be repaid over a longer period of time. Once you have the loan you need to make repayments on time.
What Are The Benefits Of Emergency Cash Loans
Quick access to funds
When authorizing the loan, emergency loan providers do not follow the same procedure as traditional banks, making the entire process much quicker and more convenient. The funds will take as little as an hour to be accepted when applying in-store. The money may be approved in an online application either on the same day or by the next business day.
Money can be used for any purpose
Lenders do not place restrictions on how payday loans should be used, as long as the money is used for legitimate or productive purposes.
Borrowers can choose from a big pool of lenders, both online and in-store.
No collateral required
These loans are unsecured, which means that no asset is needed as guarantee for payment.
You can find lenders that market loans to people with bad credit. While some may promise you quick cash, they can also come with some serious drawbacks. Here are a few types of emergency loans that might be available if you have a credit history with some dings in it — and what you should consider before you apply.
A payday loan is usually a high-cost, short-term loan you’ll need to pay back by your next payday. Limits on how much you can borrow vary by state, but typically, payday loans are $500 or less.
Payday lenders frequently charge fees which make these loans an extremely costly way to borrow money. While some states limit the fees that payday lenders can charge, according to the Consumer Financial Protection Bureau, such loans are still very costly, often with fees equal to APRs of 400 per cent or more.
Payday loans come with the risk of getting you trapped in debt. If you can not repay the loan when it comes due, you may need to “re-borrow” by moving it over to a new loan — but that will usually mean paying extra fees.
A payday loan should only be considered a last resort.
Payday alternative loan
If you are a member of some federal credit unions, you might be able to apply for an alternate loan, or PAL, on payday. Such small-dollar loans (ranging from $200 to $1,000) have a one-time processing fee that will not exceed $20 and interest rates that can not reach 28%.
Often these short-term loans are more beneficial for people who qualify than payday loans. The loan term on PALs typically ranges from one to six months, unlike the payday loans. Plus, there’s a borrowing cap: Within six months, you can’t take out more than three alternative payday loans.
If you are a member of a federal credit union that provides them, a PAL is a reasonable option to consider for emergency loans.
If you own a car, with a title loan, you may borrow against the equity in your vehicle. Such loans allow you to borrow a small amount of money that will normally have to be paid back within 30 days.
In return, you’ll give your car the title to the lender as collateral for the loan. Such loans need not automatically take a credit check. If you repay the loan and the monthly fee paid — which is often 25 per cent of the total loan, or 300 per cent APR equivalent — you’ll get your car title back. Moreover, if you can not afford to repay the loan, the vehicle may be repossessed by the lender.
Title loans, like payday loans, can hang you in a debt cycle. If you can not pay the loan when it is due, you can roll it over into a new loan by paying additional loan fees. A study conducted by the Consumer Finance Protection Bureau in 2016 found that 1 in 5 people who have to roll over their title loans wind up with a repossessed car.
You should only accept a title loan if you have run out of other options.
Unsecured personal loan
Unsecured personal loans are loans that do not allow you to provide the lender with the property as collateral. Such personal loans are installment loans unlike payday loans and title loans, meaning you are repaying the amount borrowed, plus interest, over a set period of time.
Many unsecured personal loans have lower interest rates than a traditional payday loan and have longer terms on loans. But they may also be more difficult to qualify for, because if you don’t make the payments, there is no collateral the lender may repossess.
An unsecured loan could be a good option for you if you qualify for a favorable rate.
Credit card cash advance
A cash advance by credit card is like taking a short-term loan from your credit card. If you request a cash advance, you insist that you use the balance available on your credit card to withdraw money.
But a cash advance may be paid at a higher interest rate than your payment APR and have transaction fees, which is likely to make your credit card more costly than the comparable purchase. Cash advances might also begin to accrue interest immediately, so you’ll probably want to start making payments soon after you borrow the money.
Do the calculations on your order to determine whether this choice makes financial sense to you.
Alternatives to Emergency Loan with Bad Credit
There may be other options available to pay for your emergency needs. Before you turn to a potentially high-cost solution, consider these other options.
Ask for a repayment plan
If you don’t want to take out a loan, you can try to negotiate a payment plan or a longer payment period for another bill. Creditors may offer you a low-interest loan or be willing to reduce the amount that you owe. It’s a good idea to talk with your current creditors before exploring other loan options.
Explore charitable financial assistance grants
You may be eligible for an emergency assistance grant or loan depending on your situation. Some states and towns give people poverty grants. For example, residents of Dane County, Wisconsin, can apply for grants of emergency assistance if their family faces eviction or foreclosure. Consult with your State or local region to see what funds may be eligible for hardship.
Ask your employer for a loan or advance
If you’re employed, your employer can help you bridge a short-term financial hardship. Check with your employer to see if they can offer a loan or advance on your next paycheck before you pursue an emergency loan.
And if you’re a full-time or part-time federal employee you may be entitled through the Federal Employee Employment and Assistance Program to obtain a no-interest hardship loan of up to $1,500.
Use a credit card in your wallet
Although credit cards that come with high interest rates, those rates are usually still less costly than other forms of financing such as payday and title loans. You may also be eligible to apply for a new credit card with a low or no-interest promotional APR.
Using a credit card could provide the relief you need in the short term. But if you’re using one, make sure you’ve got a plan to pay off your balance fast so you don’t pile up too much interest.
No-credit-check Emergency Loans
Be careful of lenders offering emergency loans without carrying out a preliminary credit check, which includes a soft pull of your credit report. Such no-credit-check installment loans share features with conventional payday and auto-title loans, including sky-high interest rates and additional fees which make the loan less affordable than you initially thought it would be.
Many online lenders are providing emergency loans, such as Oportun which OppLoans, and are positioned as low-cost alternatives to payday loans. Yet their rates are still high, and these lenders should only be considered after you have ruled out other lower-cost alternatives. Capital Good Fund is another no-credit-check lender that offers lower rates, but is available in only a handful of states.
How to Choose an Emergency Loan
Funding speed: If your situation is urgent, quickly getting a loan may be your priority. Typical funding times are two to seven days, and online lenders often disclose how long it takes, so you’ll know what to expect before applying.
Gather the required documents — such as W-2s, pay stubs and bank account statements — before you apply for a loan, and promptly answer the lender’s questions to speed up the loan process.
Loan costs: Speed may seem more important than loan cost, but it’s still a good idea to compare fees and annual percentage rates from multiple lenders. The loan with the lowest APR is the cheapest and usually the best choice, as long as the monthly payments are affordable.
Use a personal loan calculator to determine your total interest costs and monthly payments on the new loan.
Lender features: In addition to the loan costs, consider payment options and other features. Some lenders let you choose your payment due date, forgive late fees or allow you to skip a payment if necessary during loan repayment. Lenders may also provide financial education opportunities.
Build an Emergency Fund
Once your emergency passes, do what you can to build an emergency fund that can help you avoid taking high-cost loans in the future.
Most financial experts recommend saving between three and six months’ worth of living expenses. If that seems like a lot, start small with savings of $10 to $20 per week. Set a goal to save at least $500, which can usually cover small emergency expenses like minor car repairs.
Features of emergency loans
Short-term emergency loans come in handy when you are faced with emergency financial situations. It is also important that you compare your options before starting out with the application. Here are some of the most important features to look for in emergency loans
How much can you borrow with an emergency cash loan?
The critical factor is the direct lender, but as a rule the cash can be from a hundred to five thousand dollars.
How can I get emergency money fast?
If you need cash to cater for an emergency situation, the quicker the funds are approved, the better. Some payday loan lenders offer borrowers with almost same-day funding, including weekends. But there are lenders who will require you to wait for up to 2 or 3 three business day for the funds to be approved.
What Can I use An Emergency Loan For?
While savings can help cater for emergency expenses, more money may be required to clear the remaining balance. In this case, taking out an unsecured loan can relieve you of the stress.
Compared to bank credit, the loans are very easy to apply since the process is very fast. An emergency cash loan can be used for car repairs, weddings, business costs, refinancing credit card balances, etc.You can also get title loans or installment loans to pay off debts.
Is there anything to consider before applying for an emergency loan?
Even before starting your emergency loan application, it is important to ensure that you won’t have any difficulties repaying the loan. If you think you may have challenges, you need to seriously reconsider whether to take out the loan or not. Making late payments means that you will have to incur additional fees, which can eventually affect your credit score.
Summary for Emergency Cash Loans
It’s a wonderful thing to take out an emergency cash loan but only when the funds are used appropriately. On the other hand, if you don’t take time to go through the terms and conditions of the loan, they can be a nightmare.
Near-instant loans are particularly important when you need short-term financing over a given period of time. You will enjoy the high approval rate with emergency funds and no credit check (a soft check may be performed), but you should also take note of the short repayment period and high interest rate that has been incurred.
This will keep you from getting into more trouble than you had when you took out the loan.
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