Unexpected things happen in life: car breaks down or needs major repairs, a sudden illness or medical condition for which you are not insured, or you’re let go from the job. An emergency loan is one that helps in these kinds of situations that requires more money than we currently have.
While we all do our best to maintain an adequate savings account, sometimes life can get a bit bumpy and you just don’t have enough cash on hand to deal with unexpected expenses. That’s when you need an emergency loan.
The ability to obtain an emergency loan tends to be based on one’s credit history, and these loans tend to carry high-interest rates. But if you’re down and out and in need of a loan, don’t feel bad – over 40% of US residents can’t afford an emergency situation of over $400. So you’re not alone!
There are two main types of emergency loans: personal loans and payday loans. A personal loan would be a better option because it offers a higher borrow amount, lower APR and longer payout terms but its harder to qualify for. Typically it requires a higher FICO score and income is a great decisive factor. Personal loans unlike auto and home loans don’t require collateral to obtain. With an auto or home loan, if you fail to make the monthly installment payments the lender can repossess your property. But with a personal loan, there is no valuable asset for the bank to go after. And because there is less reassurance for the lender in protecting their loan to you, the interest rate tends to be significantly higher compared to secured loans. On the other hand, there is a payday loan. It usually ranges from $100 to $1000 and APR is over 400%. These loans are meant for a short period or they can make an emergency a nightmare. Unlike personal loans, a payday loan is easier to get as it doesn’t require a good credit score nor large income. With all that said, if one ever needs extra funds to cover an unexpected situation, try personal loans first.
Installment loans take many forms, including car loans, home mortgages, and student loans. One common thing about all these types is that payout terms are in fixed installments. An auto loan is one of the most common ways for which people are taking out a loan. Most auto loans carry terms of roughly three to five years and are paid back monthly. Typically, the longer payback period the more you will end up paying for the car because the interest accrues over time. So if you can handle larger monthly installment payments, you will save money over the long run. Another common type of installment loan is a home mortgage. Most folks can’t buy their home out of pocket and need to go to a lender to secure a home loan. Like an auto loan, a mortgage (or home loan) is typically paid back in monthly installment payments at a predetermined interest rate. Because the loan amount is usually much greater, the payback period is usually 15 – 30 years.
If you are buying a car or home, you will likely need to get an installment loan. Although the loan will end up costing you more money than the actual sale price of the car or home, it is simply a necessity for most people. An installment loan can allow purchasing items you can’t buy with cash. A disadvantage with an installment loan is if you know you can’t afford the monthly installment payments you will just create a headache and hurt your credit.
There are many advantages to getting a personal loan, especially if you are in an emergency situation. A personal loan can help you pay medical bills, get your car fixed, and make necessary home repairs. An emergency-based personal loan can also help you to pay off credit card debt, pay for college expenses, or simply purchase the important things you or your family needs. The major disadvantage of a personal loan is that you will typically pay back much more than you borrowed – because the interest rate will likely be high. And if you can’t afford the monthly installment payment, this will be bad for your credit history. Therefore, make sure you can pay it back before getting into a contract with the lender.
No matter what type of loan you’re taking out always remember to pay it back on time. With proper management, an emergency loan can get you back on your feet and installment loans can help you with asset purchases. However, proper management is the key!