By At some point in everyone’s life, an emergency will crop up that requires immediate financial attention. This might be a car repair that needs to be taken care of right away, an unexpected trip to the hospital, or any other type of unforeseen expense. When this happens, it’s important to have a Plan B – and that’s where emergency loans can come in handy.
What is an emergency loan?
Emergency loans are personal installment loans that can be used for whatever expenses need to get covered during an emergency. Those costs can include medical care, car repairs, alternate transportation, and basic nutritional needs in extreme circumstances. Emergency loans are typically available through banks, credit unions, and online lenders.
An installment loan is when a lender agrees to lend the loan applicant a specific amount of money and those funds are paid back in equal monthly installments over several months. Interest rates are typically fixed, meaning the monthly payments are easy to budget because they don’t change over the life of the loan.
Is good credit required for an emergency loan?
Each lender has its own standards for approving applicants for emergency loans. Some require good credit scores of over 670. Others cater to individuals with less-than-perfect credit. These lenders are known as “bad credit” or “poor credit” lenders. Credit scores under 670 fall into this category, even those listed as “fair” in the FICO system.
Many online lenders offer a “pre-application” page where applicants can get pre-screened to see if they meet basic eligibility requirements. This pre-screening does not affect the applicant’s credit score, but it’s also not a final approval. That happens later.
Pre-approved applicants for emergency loans are presented with the option of submitting a final application for the lender’s review. Final approval requires a “hard inquiry” on the applicant’s credit report, which does affect their credit score. The applicant can expect a drop of a few points and an entry on their credit report that an inquiry was made.
Why are emergency loans a better choice than other options?
People in emergency situations are often tempted to use their credit cards instead of taking out a personal loan. That’s a more expensive way to handle it because credit card interest rates are usually higher than personal loan interest rates. Depending on the amount of the expenses involved, it might be a better idea to take out an emergency loan.
Another factor to look at are the long-term expenses involved in the emergency. If an emergency fund exists, using it all at the beginning of the crisis could leave the affected parties with little or no resources for follow-up expenses. An emergency loan keeps the liquid assets in the emergency fund for later use, which, if they’re not needed, can be used to repay the loan.
The bottom line
If a person is in a bind and needs some emergency cash fast, an emergency loan may be a good option. Different lenders have different requirements, so it’s important for applicants to do extensive research before applying. Regardless of the credit score, there are lenders out there who are willing to extend a loan for life’s unexpected hiccups.
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About OneMain Financial
OneMain Financial is the leader in offering nonprime customers responsible access to credit and is dedicated to improving the financial well-being of hardworking Americans.
Contact Information:
Name: Sonakshi Murze
Email: [email protected]
Job Title: Manager
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