Whether it’s a leaky roof, a broken refrigerator, or job loss, unexpected expenses can hit you at any time. If you don’t have enough money in savings to cover them, emergency payday loans are a good option.

Just make sure you’re getting the best deal by doing your research on different types of emergency loans.

1. Personal Loans

types of emergency loans

If you’re dealing with a financial emergency, there are steps you can take to mitigate the impact. Planning can include bolstering your “rainy-day” fund and learning about resources in your community. It also includes knowing how different types of emergency loans work and which are healthier for your finances.

Personal loans, for example, are typically offered with flexible terms that can be used for a variety of purposes. They also feature low interest rates and an easy online application process. In addition, depending on the lender, some personal loan providers can offer quick approval and funding — in as little as one business day.

Personal loans typically require a good credit score for the best rates, and if your credit is poor, you might find lenders offering bad credit loans with high-interest rates. Another important factor to consider is the length of the repayment term and your monthly payment amounts. A shorter term can cut costs but ensure you can handle monthly payments. Using a loan calculator can help you determine the right repayment plan for your needs.

An emergency loan may seem attractive if you lack savings and need quick cash. Still, it’s wise to explore alternatives. Payday and title loans come with steep fees and credit card cash advances can lead to debt cycles. Consider better options: a financially stable friend or family member may co-sign for a lower rate, or you could use home equity for an affordable, quick loan, though not ideal if mortgage loan payments are a challenge.

2. Car Loans

types of emergency loans

Many lack rainy-day savings for financial emergencies, especially with poor credit or limited income. Options include personal loans, payday loans, and auto title loans. A top alternative is an emergency car loan, offering flexibility and easier approval compared to personal loans with stricter requirements and higher rates. Car loans provide quick cash, often within one business day or even same-day.

However, it’s important to remember that you should only use a car loan in an absolute emergency situation. You should also do your best to build your rainy-day savings and reduce any other high-interest debt you may have, as this can save you money in the long run.

Another good option to explore is a home equity line of credit (HELOC). This borrowing product allows you to draw on a set amount of money against your home’s equity and repay it over an extended period. HELOCs can be helpful when an unexpected expense pops up, and they can also be used to cover the cost of large-ticket items like appliances or a new vehicle.

Auto title loans use your vehicle as collateral, risking car loss if you can’t pay. It’s not the preferred emergency loan choice. Explore alternatives like government assistance or debt management programs before considering this option, unlike payday loans or credit card cash advances.

Review loan terms carefully and steer clear of unethical lenders exploiting stressful situations. Research online, understand interest rates and fees and thoroughly read contracts before seeking financial help.

3. Credit Card Cash Advances

types of emergency loans

Credit card cash advances can be a quick way to access some extra cash in an emergency. However, they should never be your first option. It is important to understand how a credit card cash advance works and how it will impact your debt load. You may be able to find less-expensive borrowing options that can help you cover an expense, like a personal loan or an increase in your credit limit.

Rainy-day savings are ideal to avoid high-interest, short-term emergency payday loans. Yet, life’s surprises can be unpredictable, and not everyone has substantial savings. In such cases, an emergency loan may be the best choice to navigate a tough situation.

According to a recent study, the average American has about $500 in emergency savings. This is not a lot of money to fall back on, especially if you’re facing a costly emergency like a home repair or medical emergency. That’s why exploring your financing options is important, even if you have bad credit.

There are many different types of emergency loans, which can be used for different purposes. However, some emergency loan types may have better terms and lower costs than others. Some are also more readily available, particularly if you have bad credit. Choosing the right type of emergency loan can save you money and make it easier to pay off your loan on time.

Struggling to build an emergency fund? Consult a professional like a nonprofit credit counselor for financial advice, including tips on savings. They can also suggest niche options, such as online lenders for small, unexpected expenses or car title loans based on vehicle equity without credit checks.

4. Home Equity Loans

types of emergency loans

Home equity loans and HELOCs offer homeowners a way to access significant cash for major expenses, leveraging their home’s value as collateral to secure competitive, often lower interest rates compared to other loans. As the economy has recovered and home prices have risen, many Americans have built substantial home equity. As a result, mortgage bankers saw originations of HELOCs and home equity loans surge in 2022.

Comparing home equity lines of credit (HELOCs) to traditional loans, HELOCs offer more flexibility, letting borrowers access and repay funds within their credit limit. The “draw” period, lasting 5-10 years, is akin to a credit card with a variable or fixed interest rate. Unlike a home improvement loan, a HELOC isn’t a first lien, meaning it’s not fully due until you sell or refinance. But the lender can foreclose on your property if you don’t repay.

If you’re considering home equity financing, the best thing to do is consult a trusted mortgage professional. They can help you decide whether this type of financing makes sense for your specific circumstances and whether using your home equity as collateral for a major expense is appropriate.

Home equity loans and HELOCs are helpful for major expenses but not suitable for everyone. Explore alternatives, especially if repayment is uncertain. Using home equity as collateral can reduce your home’s value and affect future sales.

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