Emergency Loans Explained: What They Are and How They Work
Life doesn’t wait for payday. Whether you’re facing a car repair, medical bill or other unexpected expense, an emergency loan can give you quick access to cash. Depending on the lender, you could have money sent to your bank account the same day that you apply.
From application to funding, learn how emergency loans work so you can borrow wisely, even if you’re in a hurry.
- An emergency loan will give you a lump sum of cash that you can use for almost anything.
- Emergency loan rates typically range from 5.99% and 35.99%, with loan amounts between $1,000 and $100,000 (sometimes smaller).
- When comparing lenders, look at two things: how quickly they can make an approval decision and how soon they send funds after approval.
What is an emergency loan?
An emergency loan is a type of personal loan with same- or next-day funding in many cases. After the lender approves you, it will typically send your money as a lump sum straight to your bank account.
Other than a few common restrictions (like illegal activity and college tuition), you can use an emergency loan for almost any financial emergency.
Banks, credit unions and online lenders all offer emergency loans, but online lenders can often move faster. Comparing multiple offers is the best way to find quick funding and a competitive rate — start with LendingTree’s guide to the best emergency loans.
Emergency loans usually start at $1,000 and cap out at $50,000 or $100,000. Check out lenders that offer small personal loans if you need less than that. You’ll usually have 12 to 60 or 84 months to pay back what you borrowed, plus interest and fees.
There are other types of emergency loans too, including payday loans and car title loans. This article focuses on personal loans because they are generally safer and cheaper.
There are lenders that target people who need money fast, hoping they agree to anything or skip reading the fine print. Don’t become a victim to predatory lending and avoid lenders that:
- Pressure you to sign before you’re ready
- Guarantee that you’ll be approved
- Charge application fees
- Require you to pay in full within weeks or months
Also, 36% is generally the cutoff between an affordable loan and a high-interest loan. If you have a credit score below 580, you might see triple-digit interest rates.
Interest on emergency loans
Emergency loan rates tend to range between 5.99% and 35.99%, although rates can be higher if you have poor credit. Consider shopping with lenders that specialize in emergency loans for bad credit if your score is below 580.
Most personal loans use simple interest — the interest you pay is based only on your remaining loan balance. In contrast, credit cards usually use compounding interest. When you carry a balance from month to month, you end up paying interest on your interest.
Secured vs. unsecured emergency loans
You usually don’t need collateral to get an emergency loan, but some lenders may give you the option. Loans that use collateral are called secured loans.
Collateral can help you qualify for a bigger loan or a lower rate. Most emergency loan lenders use your car as collateral, which can be risky as the lender can repossess your car if you fall too far behind.
Review the pros and cons of emergency loans to learn more.
How does an emergency loan work?
It can be hard to take the first step when you aren’t sure of the process, especially when money is involved. Here’s what to expect when you apply for an emergency loan.
Shop around and prequalify
Shopping around might be the last thing on your mind when you need emergency funds but it’s worth the time, and it usually takes just a few minutes.
According to a LendingTree study, shoppers can save an average of $1,659 by comparing offers on the LendingTree platform and then choosing the one with the lowest rate.
Prequalifying for a personal loan lets you check rates without hurting your credit. Here, you’ll answer basic questions about who you are and why you need the loan. The lender will also conduct a soft credit pull. Not all lenders let you prequalify, but most do.
Formally apply
When you’re ready to accept an offer, you will submit a formal application. The lender should have most of your basic information if you prequalified, like your name, address and annual income.
At this point, the lender will make sure that the information you gave it is true. It may ask you to upload documents like proof of income or government-issued ID. Some lenders are able to verify this electronically, making the process quicker for you.
Most lenders run a hard credit pull when you apply. This may lower your credit score by about five points and could affect your score for one year.
Wait for an approval decision
Most emergency loan lenders give near-instant approval decisions, but generally only during business hours. If you want a same-day loan, submit your application before the lender’s application cut-off time. You can usually find this at the bottom of the lender’s homepage.
Get your money
If you finalized your loan before the cut-off time, you could see funds in your bank account by the end of the business day. Otherwise, you will have to wait for the next business day or later — not all lenders offer quick loans.
Start repayment
Your first loan payment is usually due 30 to 45 days after you finalized your loan. Consider signing up for autopay so you don’t miss a payment. Some lenders offer a discount for automatic payments, too.
Terms to know when comparing emergency loans
Getting emergency loan offers won’t help you if you don’t understand what you’re looking at.
- Annual percentage rate (APR): APRs are represented as a percentage, and they measure how much your loan will cost including interest and fees. The better your credit, the lower APR you might qualify for.
- Funding speed: Funding speed depends on two factors — how long it takes for the lender to review your application and how long it takes for it to send the money after approval.
- Loan term: A loan term shows you how much time you have to pay off your loan. Longer terms mean lower monthly payments but result in higher rates and more interest.
- Loan amount: Since loans come as a lump sum, make sure you request enough money to cover what you need. Resist the temptation to borrow extra. This leads to more debt and interest.
- Origination fee: Some lenders charge an origination fee, which are also more common when you have bad credit. Lenders usually deduct origination fees from the loan before they send you the money.
How to use an emergency loan
Emergency loans are best left to true emergencies. If you need to pay rent or can’t get to work, an emergency loan could be a practical solution. But before you borrow, use a personal loan calculator to make sure you can afford the payments.
You could use an emergency loan to cover:
- Medical bills
- Car repairs
- Veterinary expenses
- Essential travel
- Dental bills
- Rent
- Everyday living expenses
- Funeral costs
Using an emergency loan wisely can help you stay afloat during a financial setback. When you get your money, focus on paying your most urgent bills first. If you have any left over, consider putting it toward the loan’s principal to pay your loan off early.
On the flip side, if you’re having trouble making your payments, call your lender immediately. Many have financial hardship options that can get you back on track.
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