Emergency Loans: Pros, Cons and Other Considerations
An emergency loan can help you cover costs when you’re slammed with an unexpected expense, such as a medical bill or busted water heater. An emergency loan is a type of personal loan with fast funding — usually the same day or the next business day after you’re approved.
Although emergency loans can be a lifeline when you’re in a pinch, they also have drawbacks. Learn the pros and cons of emergency loans, and stick around for practical tips that can help you start an emergency fund.
- An emergency loan will give you a lump sum of money that you can use for almost anything.
- Emergency loans can be a solid choice if you have at least good credit and know how much your emergency will cost you.
- If your emergency will cause ongoing or repeated expenses, a credit card or personal line of credit might be a better option.
Pros of using an emergency loan
It’s stressful when you need money quickly but aren’t sure where to turn. An emergency loan could be the solution.
The cash is sent directly to you
An emergency loan works like any other personal loan, but if you’re not familiar with the process, it’s worth understanding how an emergency loan works before you apply. Once approved, you’ll get your loan in a lump sum, usually by direct deposit. Lenders have few rules on how you use that money.
For instance, say your car breaks down and you missed two days of work as a result. You need money for car repairs and a little extra to carry you until payday. You could use one loan to cover both of those expenses.
Lower rates than credit cards if you have good credit
Emergency loans tend to be cheaper than credit cards if you have good credit or better.
At the time of this writing, the average credit card rate in the U.S. is 24.04%, according to LendingTree’s analysis. As a comparison, LendingTree users with scores of 740-799 saw an average personal loan rate of 14.35%, based on our most recent data.
We’ll see how much that difference can save you in just a moment.
Fixed interest, not a growing balance
An emergency loan probably makes more sense than a credit card if you need more than a month to pay back what you borrow.
Personal loans have fixed interest rates. You’ll know how much total interest you’ll pay before you borrow, as long as you stick to your payment schedule.
Credit cards usually charge compounding interest. After each billing cycle, your issuer adds interest to your balance. Then, that new, higher balance starts earning interest itself.
The table below shows how credit card interest can snowball.
Imagine you need to borrow $10,000. In this scenario, you saved more than $3,200 in total interest by using a loan instead of a card. APRs are based on the averages discussed above.
| Financing option | Amount borrowed | APR | Monthly payment | Time to pay off | Total interest paid | Total cost |
|---|---|---|---|---|---|---|
| Personal loan Average personal loan rate is based on LendingTree user data on closed personal loans for the second quarter of 2025. Limited to loan amounts of at least $5,000 and repayment terms of at least 24 months. This scenario also assumes the borrower has a credit score between 740-799. | $10,000 | 14.35% | $234.50 | 60 months | $4,070.06 | $14,070.06 |
| Credit card | $10,000 | 24.04% | $287.91 | 60 months | $7,274.71 | $17,274.71 |
Want to learn more? Read Personal Loan vs. Credit Card: How They Compare.
Can help improve your credit score
Several factors are used to determine your FICO Score. One of them is credit mix, which makes up 10%. Credit mix measures how diverse your borrowing history is — whether you have a mixture of loans and cards.
If you don’t already have an installment loan (like an auto loan or mortgage), then an emergency loan could improve your credit mix. Plus, on-time payments on an emergency loan will likely have a positive impact. Payment history is the most important credit score factor, at 35%.
Common reasons for an emergency loan
An emergency loan could help you pay for a variety of unexpected expenses, including:
- Medical bills
- Dental bills
- Veterinary care
- Funeral expenses
- Home repairs
- Last-minute, essential travel
- Moving costs
- Car repairs
Cons of using an emergency loan
An emergency loan might work for some people, but it might not be a good fit for you. Here are some drawbacks to consider.
High interest rates if you have bad credit
It’s possible to get an emergency loan with bad credit, but rates can be expensive — sometimes in the triple-digits. Predatory lending is also unfortunately common when you have bad credit.
If a loan’s APR is above 36%, take a closer look. Higher rates can still be legitimate, but many experts believe that’s when borrowing starts to become risky. Understand fees and repayment terms before signing, and skip lenders that guarantee approval. Always use a personal loan calculator before borrowing to see if the interest is worth it.
One-time funding, unlike a credit card or personal line of credit
A loan might not make sense if you don’t know how much your financial emergency will end up costing you. Emergency loans come as a lump sum. If you need more money, you have to take out another loan. You also don’t want to overshoot and borrow more than necessary.
If you need money for a longer-term emergency, you may want to look into a credit card or a personal line of credit (PLOC) instead. These financing options let you borrow as you need it rather than giving you a lump sum.
Can come with origination fees
Some emergency loans come with an origination fee. Usually, you don’t have to pay origination fees upfront. Instead, the lender typically deducts the fee from your loan before sending it to you. You might have to ask for a higher loan amount to make up for the fee, leading to more debt and interest.
Could hurt your credit if you pay late or already have lots of debt
No matter the type of loan or card, missed and late payments hurt your credit score, sometimes by as much as 100 points.
There’s also your debt-to-income (DTI) ratio to consider. DTI measures how much debt you already have compared to how much you make.
Aim to have a DTI of 35% or lower. Lenders usually consider 35% as “good.” Learn how to calculate your DTI ratio before borrowing.
Tips to start an emergency fund
Your best bet is to tap your emergency savings when facing a financial crisis. Whether you’re starting an emergency fund from scratch or want to beef up your current savings, the strategies below can help.
Review your spending to find extra savings
If saving feels impossible, it may help to take a close look at where your money is going. Review the last three months of your bank statements and note which expenses you can cut. You aren’t going to get rich by making lunch at home, but that money may serve you better if you stash it away.
Consider parking your emergency fund in a high-yield savings account (HYSA). An HYSA helps you earn interest on your savings. The bigger your emergency fund, the more opportunity you have to earn.
When comparing HYSAs, look for a higher APY (or annual percentage yield). This is the rate at which your savings will grow in a year’s time.
Automate your savings
Use automatic payments and send part of your paycheck to a dedicated savings account before it hits your checking account. It’s easier to save when it’s out of sight, out of mind.
Round up with a savings app
Think about signing up for an app or service that lets you round up your debit card purchases. The amount you round up is then sent to a savings or investment account.
Chime’s Round Up feature, for instance, stores that extra savings in an HYSA. You might only be saving a few cents per transaction, but that can add up over time.
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