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Banking Basics

What Is an Emergency Loan?

Emergency loans are borrowed money that is typically disbursed quickly to help pay for sudden costs, like a broken-down car or necessary home repairs. They’re available for those who need money in a crisis situation to help cover unexpected expenses.

Rachel Velez • April 5, 2022

The Federal Reserve System’s Report on the Economic Well-Being of U.S. Households in 2020 states that 35% of adults wouldn’t have cash, savings, or a credit card (that would be paid off at the next statement) to cover a $400 emergency expense in its entirety. Twelve percent said that they wouldn’t be able to pay for the expense at all. 

Needless to say, you’re not alone if you don’t have the money for an emergency situation, such as your furnace breaking, or if you lose your job and don’t have enough money to pay your bills. Emergency loans are convenient since they’re relatively easy to apply for and are disbursed pretty quickly, getting you the funds you need fast. 

If you find yourself dealing with a financial emergency and needing cash quickly, an emergency loan could help you cover the costs. Some loan types also offer fast and convenient application and approval processes, depending on your credit score

There are certain implications that come along with an emergency loan, so make sure you’re familiar with them before applying, as you don’t want to set yourself back financially. Let’s now learn everything about emergency loans — from how they work to how to apply for one, along with the different types of loan options that are out there.

In This Article

  1. How Does an Emergency Loan Work?
  2. Types of Emergency Loans
  3. What Can You Use an Emergency Loan For?
  4. Comparing Emergency Loans: Things to Consider
  5. How to Get an Emergency Loan
  6. Where to Get an Emergency Loan
  7. Emergency Loans for Bad Credit
  8. FAQs
  9. Final Thoughts: Preparing For Unexpected Expenses

How Does an Emergency Loan Work?

Borrowers can apply for an emergency loan to cover sudden expenses or a gap in income. These types of loans are typically transferred quickly, since you probably can’t afford to wait around for the funds in an emergency situation. A lot of lenders offer a fast turnaround for the loan’s disbursement, some even being the next business day. You can use these loans to pay for emergencies like urgent repairs, medical bills, or funeral costs. 

However, not all emergency loans are the same. For instance, some come with lower interest rates for applicants with a good credit score, while others come with very high interest rates. A few different forms of emergency loans include personal loans, payday loans, and credit card cash advances. But, before you decide to take this route, it’s a good idea to learn how these 3 common emergency loans work.

Types of Emergency Loans

An emergency loan is a broad term that pertains to some short-term loans. There are different types of emergency loans; therefore, before taking one out, it’s a good idea to understand how each works and the terms and conditions that come along with them. 

Personal Loans

A personal loan can act as a type of emergency loan that allows you access to a certain amount of cash. A lot of personal loans are unsecured, but some lenders offer secured loans that are backed by collateral. These loans are usually offered by banks, credit unions, and online lenders. Personal loans are also known as installment loans, meaning that they’re paid back over a specific period of time.

For personal loans, interest rates and fees can vary widely from lender to lender, and your rate is typically based on your credit score, income, and debt. Disbursement times generally range from the same day you apply to several business days after the initial application. You can use a personal loan for nearly anything, from debt consolidation to covering an emergency expense. But, it’s important to research the terms offered by different lenders to guarantee you’re picking the right loan for your situation.

Payday Loans

A payday loan is another type of installment loan used for emergencies with a very short term, usually only a couple of weeks to a month. Payday lenders will advertise themselves as a good option for those with poor credit. These lenders will give you money on the spot with the agreement that you will repay them with your next paycheck. According to the Consumer Financial Protection Bureau, the lender ultimately sets the interest rate or fee you’ll pay, some being as high as 400%. 

The lender might also ask you to write a dated check for the amount you owe, and they will cash the check on that date regardless of how much money is in your account. These types of loans are best for borrowers who need small amounts of money and can repay the loan in full within a short time period. 

Credit Card Cash Advances

If you already have a credit card, you can get funds quickly for an emergency with a cash advance, which is considered a type of emergency loan. Many credit cards offer a cash advance feature that lets you access the cash from an ATM or bank. Then, you pay back the cash advance as part of your regular credit card payment.

Credit card cash advances typically have higher interest rates than your card’s current annual percentage rate (APR). And since the cash advance is linked to your existing card’s credit limit, it doesn’t require an additional credit check. This option is best for cardholders who already have active credit cards in good standing and need to borrow smaller amounts. 

What Can You Use an Emergency Loan For?

You can essentially use an emergency loan for just about anything. But, the main purpose for it is to help cover the costs of an actual emergency. So, you probably shouldn’t take one out to go shopping or on a vacation. Some common uses for an emergency loan include:

  • Medical bills: Emergency room bills or an unexpected medical expense
  • Rent or mortgage payments: Your rent or mortgage payment is due, and you don’t have the cash
  • Utilities: Falling behind on monthly utility bills like electricity or Wi-Fi
  • Funeral expenses: If a family member passes away and the funeral costs aren’t covered by insurance
  • Home or car repairs: Home or auto repairs that need immediate attention, such as a new roof or tires for your car
  • Job loss or a gap in income: When the loss of a job means you need help paying for your living expenses
  • Pet illness or surgery: Expensive vet bills, like if your pet needs emergency surgery or medical attention 

Some emergency loan lenders have restrictions on how you can use the funds, so be sure to review the terms of your loan before filling out an application.

Comparing Emergency Loans: Things to Consider

Rather than applying for the first loan you find, it’s good to shop around and compare lenders to find the best one for you. Here are some important factors to consider when choosing an emergency loan:

  • APRs: An APR is an interest rate that includes all the fees and costs of a particular lending product. Looking for a loan with the lowest rates can help you pay the least amount of interest and save you a huge chunk of money over the life of your loan. Interest can build up fast, and you can end up paying double — or triple — the amount you originally borrowed if you aren’t careful.
  • Repayment terms: The amount of time you have to repay your loan will have an effect on your monthly payment. A longer-term will lead to lower monthly payments, while a shorter time frame will mean a higher monthly bill. Figure out the timeline for paying back your loan along with what monthly payment you can afford.
  • Fees: Each lender charges fees, and the most common fees associated with emergency loans are origination and late payment fees. These fees can significantly add to your loan’s total amount and make it more difficult to pay it off.
  • Funding time: If you need money for an emergency, you probably need the funds fast. It’s good to find out how long it will take the lender to deposit money into your account upfront, as some lenders can send you the money the same day you apply, while others will take days or weeks to process your application.
  • Credit requirements: Lastly, think about what requirements you need to meet to apply for a particular loan. In a lot of cases, your credit has a big impact on your ability to qualify and what rate you’ll receive. Each lender has different standards and requirements, so review as many as you can before applying for an emergency loan.

How to Get an Emergency Loan

Applying for an emergency loan can be a similar process to applying for any other type of credit. Typically there are standard steps you need to take, but some will depend on what type of emergency loan you apply for and from which type of lender. Here is the general process:

  1. Organize your documents: You’ll generally need certain documentation such as your ID, Social Security number, and proof of income or employment.
  2. Compare lenders: Even though you need the money fast, take the time to compare rates and terms from multiple lenders to get the best deal. 
  3. See if you prequalify (if applicable): Some online tools allow you to put in your information and prequalify for different loans all at once to make the process faster and easier. This helps since you won’t have to fill out a bunch of applications or have multiple hits to your credit report.
  4. Fill out an application: Now, it’s go time! Many lenders have quick online applications and give approval decisions on the same day you apply.

Where to Get an Emergency Loan

You may now be wondering: where you can get an emergency loan? Again, you first want to decide what kind of emergency loan you’re looking for, depending on your credit score and financial situation. There are 3 common types of financial institutions that offer emergency loans: banks, credit unions, and online lenders. 


If you already use a brick-and-mortar bank, it might be a good place to start there when in need of an emergency loan. Some banks offer special relationship discounts to their customers, which can give you a better rate and might save you money in the long run. However, be aware that banks can have different application processes compared to other lenders. For instance, many banks have certain credit score or income requirements you must meet before you can qualify for a personal loan. And you may not get the money as fast as you need it, so check how long it takes for the funds to get direct deposited into your account before applying.

Credit Unions

If you use a credit union for your checking or savings accounts instead of a traditional bank, you may be able to get an emergency loan from there. Credit unions sometimes offer lower rates and more flexible terms when it comes to emergency loans. Although, keep in mind you might have to meet certain membership requirements before you can apply when it comes to credit unions. 

Online Lenders

Online lenders tend to be the fastest when processing emergency loan applications and disbursing funds. Unlike most banks and credit unions, you usually don’t have to be a member or current customer to borrow from an online lender. Plus, many let you prequalify online, where you can check your rates with no impact on your credit score. Just make sure you’re looking at a reputable company with a secure website before sharing your personal information.

Fintech Companies Offering Emergency Loans

Fintech companies are starting to offer lending options for Americans with good credit scores. Their aim is to change the idea of lending into a financial solution for short-term borrowers, which can build their credit while providing financial education.

Emergency Loans for Bad Credit

It can be stressful to need an emergency loan, especially when your credit isn’t in tip-top shape. Borrowing options tend to be limited when you have a lower credit score. But, this doesn’t mean you’re out of luck. You may be able to qualify for an emergency loan even with poor credit, but it’s important to have realistic expectations when trying to borrow money. 

Since there’s more risk involved for the lender, emergency loans for those with bad credit can get expensive due to the higher rates and fees. On the bright side, there are a few steps you can take to improve your chances of qualifying for an emergency loan if you’re faced with bad credit:

  1. Add a cosigner: Some lenders will let you add a cosigner to your application to boost your chances of qualifying. A cosigner is a friend or family member who is willing to help you qualify for a loan by agreeing to repay the loan if you (as the borrower) do not. Your cosigner then becomes equally responsible for the loan, meaning their credit could get damaged if you don’t make your payments. But if your cosigner has good credit, they could help make up for your poor score and give you a better chance of qualifying.
  2. Use collateral: Some lenders offer secured options, which means you can offer collateral, or something of value like real estate or investments, to help reduce the risk you pose on the lender. However, if you fail to meet your repayment obligations, the lender can then take your possessions permanently.
  3. Apply with a credit union: Again, credit unions are sometimes more flexible than traditional banks when looking at applicants for an emergency loan. Check with your local credit union and ask about its options for those with a lower credit score.


Are there alternatives to emergency loans?

Emergency loans can offer relief in certain situations, yet taking on more debt might not be the best move if you’re already struggling financially. Depending on the level of need for an emergency loan, consider these alternatives first:

  • Zero-interest credit cards
  • Medical repayment plans
  • Paycheck advances
  • Hardship programs
  • Asking friends and family for help

What’s the difference between a payday loan vs. a personal loan?

Payday and personal loans are often both unsecured, so there’s no asset or collateral associated with the loans. The main difference between the two is the terms. A payday loan is a short-term loan, usually due within a month, while the term for a personal loan can be at least a year. Personal loans generally have much lower interest rates than payday loans, which can be helpful if you’re using the funds to pay for an emergency. 

How long does it take for an emergency loan to process?

Some emergency loans are processed as soon as the next business day after the loan application is submitted. There are lenders that also offer next-day funding for applicants who meet certain requirements. However, loan processing can take up to a few days, especially if the lender needs additional information from you or if the loan isn’t approved on an actual business day.

Will an emergency loan affect my credit score?

Applying for an emergency loan can slightly ding your credit, just like applying for any loan. However, some lenders let you prequalify with no impact on your score, allowing you to shop around before committing. 

The lender will usually run a hard credit check, which results in a hard inquiry on your credit report. Hard credit inquiries can drop your FICO® Score by up to 5 points for one year and will stay on your report for up to 2 years.

Final Thoughts: Preparing For Unexpected Expenses

Even if your finances are equipped to deal with an unexpected expense, it may not always be possible to be 100% prepared. Dealing with an emergency expense is stressful, and not having the money to cover it can create an even bigger burden. An important thing to think about when you decide to borrow money for an emergency is comparing multiple emergency loan offers to make sure you find the best solution for your circumstances. 

It’s impossible to see an emergency coming, so once you’ve recovered from the current one, make a plan to put yourself in a better position for the next time an emergency arises. You can start by building an emergency fund. Having money set aside for unavoidable mishaps that occur can prevent you from needing to use emergency loans or other sources of fast cash in the future.

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