When Should You Use an Emergency Personal Loan?

More than 50% of Americans can’t cover an emergency expense with just their savings. If you need to turn to quick cash loans for unexpected expenses, you’re not alone.

When choosing between the different emergency loan options that are available, personal loans are one of the best choices. However, it can be tough to decide whether a personal loan is worth it and whether it’s right for your emergency situation.

In this guide, we’ll tell you about the best reasons to use an emergency personal loan.

Advantages of Personal Loans

Although there are other loan options available, an emergency personal loan can be a lifesaver during a time of financial crisis.

It’s best to build an emergency fund and have savings that amount to at least two months’ worth of income. However, if you don’t yet have enough savings to cover emergencies, a personal loan can be the next best thing.

Here are some reasons why a personal loan is a good choice compared to other loan options. 

Better Terms

Personal loans have more flexibility than other types of loans. Loan terms could range from 1 to 5 years, so you’ll be able to pay back the loan at a pace that works for you.

With certain types of loans, you won’t get as much flexibility and will need to pay back the money in a very short amount of time. This can lead to a cycle of debt.

Paying back a flexible personal loan will be more manageable and can be made to work for your income and individual needs.

Fast Process

If an emergency comes up, then you’ll likely need cash quickly and won’t have the luxury of waiting weeks for the money to be deposited into your account. Personal loans are available when you need them. 

With certain online lenders, you can apply for a loan quickly and receive the money you need within 24 hours or several days.

Low APRs

Compared to other loan options, personal loans also have lower interest rates.

When taking fees into consideration, emergency loan options such as payday loans may have an annual percentage rate (APR) of nearly 400%. Most personal loan interest rates range from about 6% to 36%, meaning that they’ll be much more affordable.

The higher your interest rate, the more money you’ll pay overall, so it’s best to get a loan with as low an APR as possible.

Drawbacks to Personal Loans

Although personal loans can be a great help in emergencies, they also have their risks. Whenever you borrow money, you should be careful of the downsides and should understand the added burden you’ll be taking on.

Here are a few drawbacks of taking out a personal loan for an emergency.  

Added Fees

For certain personal loans, you’ll need to pay high origination fees, late fees, and prepayment penalties. You should watch out for the added fees when taking out a personal loan and do the math to ensure that it will be a good choice.

Origination fees will be added to the APR of your loan, so you’ll want to check the interest rate to ensure that it will still be a good option for your needs. 

Collateral Requirements

In addition to or in place of high fees, some personal loans will require collateral. You’ll have to secure your loan with something that you own in order to be approved for the loan. This is more likely to be the case if you have bad credit.

Although there are many personal loans that don’t require collateral, many of them do, so this can make it more difficult to find a great personal loan.

Rates Vary

Although you can potentially get a very good interest rate with a personal loan, this will vary based on your credit score and your financial history. While personal loans are available to borrowers with bad credit, interest rates will be higher.

Despite this, a personal loan can still be a good option for emergencies, especially compared to risky alternatives. However, to get the best rates, you’ll need to have good or excellent credit and should have a score of over 670.  

When Should You Use an Emergency Personal Loan?

So when should you use a personal loan and what are the best reasons for doing so? Here are a few ways to use an emergency personal loan.

Paying for Medical Bills

One of the reasons that you may need to take out a personal loan is to pay for unexpected and unmanageable medical bills. You can get a personal loan quickly, so they can help in emergency and medical situations.

Medical bills can be very high and if you don’t have an emergency fund, they can be tough to pay. While you can negotiate with insurance companies and a hospital or doctor to some extent, there still may be a large sum to pay after all is said and done.

A personal loan can help cover these costs and will be especially helpful if you’re required to pay in full. 

Making Emergency Home Repairs

While you can use a personal loan for any home renovations or improvements that you make, they may be necessary if you have an emergency situation on your hands.

If your hot water heater is broken, if you have unexpected plumbing or electrical issues, or if you need a major repair immediately, then an emergency personal loan can help. For any issue that requires an immediate repair, a personal loan can be well worth it.

Making Major Purchases

There are many large purchases that can come up suddenly and that may be tough to pay out of pocket.

If you need to buy a new washer or dryer immediately, for example, then it could be helpful to use a personal loan to cover it. You might also want to use an emergency personal loan if you need to make a major car repair and can’t get to work without your vehicle.

There are many other unexpected expenses that can come up as well, so you may want to consider paying for them with a personal loan if necessary.

Long-Distance Moves

You may be able to save up money for a long-distance move if you have enough advance notice. However, there are times when you may need to move suddenly, such as for family reasons or for a job.

The cost of a move can be high. You may need to pay several thousand dollars for it.

A personal loan can help you pay the fees and costs associated with moving. You can use it to cover a truck rental or to pay a moving company. An emergency loan can also help pay for security deposits or move-in fees that you’ll need to take care of in your new home.

Weekly Living Expenses

If you’re struggling to pay your bills and live your daily life, there are various loan options that can help in a pinch. Payday loans, for example, are often meant to cover weekly living expenses until you receive your next paycheck. 

When covering everyday expenses, a personal loan is one of the best options and will have reasonable terms and interest rates. Even if you have bad credit, there are ways to get a personal loan instead, and doing so can be a great choice.

A personal loan can be a great alternative to riskier loans and can allow you to get the money you need for daily living expenses. A personal loan can help you avoid getting trapped in a cycle of debt when compared to other options.

Debt Consolidation

If you have a lot of credit card debt, then it can become unmanageable and can cause problems in your daily life. Credit card debt can hold you back and make it more difficult to pay for the other big expenses you have or to save up for an emergency fund.

In many cases, using a personal loan for debt consolidation can be a great choice. If you’re able to get a lower interest rate on your loan than the rate on your credit card debt, then you can end up saving a lot of money. You’ll also likely pay less on your monthly payments.

If you have multiple credit cards to pay back each month, it can be hard to keep up with the payments. A debt consolidation personal loan can make multiple payments into one and make it easier for you to pay back your debt each month.

Ready to Apply for an Emergency Personal Loan?

If you want to cover an unexpected expense or emergency, then taking out an emergency personal loan can be a smart move. However, be sure that you only borrow money responsibly. Ensure that taking out a loan is the right choice for the type of emergency you have.

Ready to apply for a personal loan? Get started now to receive an offer that’s tailored to your needs.