Emergency Loans: What to Know Before Applying | Capital One (2024)

When unexpected expenses pop up, they can sometimes exceed a person’s cash on hand. But there are options for getting fast funding during emergencies like medical care or home repairs. Emergency loans, which typically refer to a range of unsecured personal loans, are one possibility. However, they may come with unfavorable terms like higher interest rates or fees.

What you’ll learn:

• Emergency loans generally refer to unsecured personal loans that borrowers can access quickly once they’re approved.
• Alternatives to emergency loans include setting up a payment plan or applying for a no-interest or low-interest credit card.
• Having little to no credit history can make borrowing money more challenging. But you may still have options.
• To help deal with unexpected expenses in the future, you could set money aside in an emergency fund.

Emergency loans are short-term loans that are typically used for emergency situations, like medical bills, home improvements, car repairs and other financial emergencies. The funds could be available the next business day or even the same day.

Personal loans, cash advances, title loans and payday loans might be in this category. But some may be riskier and have higher interest rates than others. As with any loan, it’s important to understand the details, terms and conditions before borrowing.

With some emergency loans, you may get faster approval and have the funds deposited into your account within a day, compared to other loan types. Then you’ll typically repay the loan with fixed monthly payments during a specific time period.

Here are some important things to know about emergency loans:

• Higher credit scores typically help. Lenders will set your terms based on certain factors. But higher credit scores almost always help you get a better interest rate and more favorable terms.
• Repayment terms can range widely. Some loans qualify as installment loans, which require monthly payments over a certain period. Other types of financing that can be used for emergencies may have much shorter repayment timelines.
• Collateral may be required. If a loan requires collateral, such as a car or a house, there’s a chance the property could be taken in the case of default. These secured loans may come with relatively short repayment terms and a high interest rate.
• A hard credit inquiry might be needed. Applying for an emergency loan may result in a hard credit inquiry, like when you apply for a line of credit. And a hard credit inquiry could impact your credit scores.
• Some may charge origination fees. These fees can reduce the amount you receive by a given percentage. In this case, you may want to ask for more money upfront to counteract it.

Understanding these nuances could help you make a more informed decision. You may be better equipped to decide whether an emergency loan is right for you and which type offers terms that best suit your needs.

A personal loan can be used for both expected and unexpected costs like home repairs and improvements, medical bills or opening a business.

Personal loans are typically unsecured. This means you won’t need to put up any collateral to get the loan. However, you might need good to excellent credit scores to qualify for the best terms and rates for an unsecured personal loan.

Compared to some other types of loans, personal loans may have shorter repayment terms that can range from a few months to a few years. And since personal loans are generally a type of installment loan, they typically require regular monthly payments to pay them off.

With a credit card cash advance, you can withdraw cash against your credit card limit. The amount withdrawn is then added to your credit card balance. But be aware: Interest rates could be higher on cash advances. Credit card cash advances also may not have a grace period for interest, so you could accrue interest from the date of the transaction. And when you use a credit card cash advance, you may have to pay a fee.

You can generally withdraw the cash at either your bank or a participating ATM. You may want to review your credit card issuer’s terms before you take out a cash advance. And be sure you know how much credit you have available.

Payday loans are usually short-term loans meant to be repaid by a person’s next paycheck. They can have high interest rates.

Before you take out a payday loan, it’s important to consider your ability to repay it. If you don’t have the funds to cover the full loan amount when repayment is due, you may be subject to rollover fees, late fees and more. If you’re already cash-strapped, these fees and high interest rates could make it even more difficult to pay back the loan.

Credit checks aren’t usually required for payday loans, which may make it easier to get funds if you don’t have great credit. But these loans can come with a hefty price, with some lenders charging an annual percentage rate (APR) of nearly 400%, according to the Consumer Financial Protection Bureau (CFPB). For this reason, experts generally suggest you avoid payday loans entirely, if possible.

Title loans use your car as collateral and let you borrow money against your vehicle. They’re typically short-term, high-interest loans for people who don’t have good credit. But if you don’t repay the title loan, the lender can repossess your car.

Many title loan lenders require borrowers to own their cars outright. That means someone who’s still making payments on their vehicle would need to look at other loan options.

If you’re looking for an emergency loan, you may want to consider things like what you can qualify for, how quickly you’ll need the loan, what kinds of other costs you may pay and how long you’ll have to repay it. So it’s a good idea to keep these factors in mind:

• Eligibility: Lenders sometimes provide better terms to people with higher credit scores. If you’re working on your credit, your options may be limited and the costs to borrow money may be higher.
• Loan amount: You’ll likely need a specific amount of money to cover the costs of an emergency. And you may want to verify that a lender will give you enough money to cover those expenses.
• Funding time: If you’re approved for an emergency loan, you can typically access the funds quickly. But since the timeline will depend on the lender, you may want to verify it.
• Interest rates and fees: It can help to know what interest rate you’ll pay and any fees associated with borrowing the money. When rates and fees are high, it can increase the total cost of an emergency loan. Comparing costs can help you find a loan that may work for your financial situation.
• Terms for repayment: Repayment terms will vary depending on the lender. It’s important to compare repayment terms and interest rates to find the right loan for you.

When you apply for an emergency loan, you’ll typically follow these general steps:

1. Research emergency loan options to see whether there’s a good fit for your situation and credit profile. If you have higher credit scores, you’ll likely have more options.
2. Learn about how applying for a loan might affect your finances and credit. Keep in mind, applying for a loan can result in a hard inquiry, which could affect your credit scores.
3. Compare lenders and loan terms and conditions, including fees, interest rates and repayment timing. Loan offers could include no hard credit check, a lower interest rate and quicker access to funds. So it’s a good idea to see what would work best for you.
4. Gather the required documentation and apply for the loan, if you decide it’s your best option. The application process usually requires identification, proof of income and proof of your address. From there, you could receive loan approval anywhere from a few minutes to a day or two.

It may be difficult to qualify for emergency loans with favorable terms if you have bad or even fair credit. For example, while one lender may only require a minimum credit score of 300, another might require a credit score of at least 640.

Secured loans might be easier to qualify for. But they require collateral, such as your car or house. And if you’re not able to make payments, the collateral could be repossessed.

Setting up an emergency fund can help you financially prepare for the unexpected. Here are some steps you can take to build an emergency fund:

• Check your living expenses. The amount you’re able to save will typically depend on your expenses, income and lifestyle. Consider the cost of your mortgage or rent, food and other monthly bills. Then decide how much you can comfortably put into your emergency fund each month.
• Decide on a savings goal and timeline. A clear savings goal and a timeline could help you budget your money. The CFPB says to “put a specific amount of cash aside each day, week, or payday period.” The agency adds, “If you can occasionally afford to do more, you’ll watch your savings grow even faster.” Experts recommend having an emergency fund with at least three to six months of living expenses saved.
• Open a separate bank account. Putting your emergency savings into a separate, high-yield savings account could help you avoid spending that money on nonemergencies.
• Make savings automatic. Setting up direct deposit might make it easier to save money.
• Add extra income to your emergency fund. Tax refunds, side-hustle income and bonuses can boost your savings and help you reach your financial goals faster.

Whether you need an emergency loan can depend on your financial situation and the options available to you. These questions could help you get started:

• Is the financial situation urgent or time sensitive? If your timeline is urgent, you may need to pursue an emergency loan. But if you have time to save money, it may be beneficial to wait.
• What are the costs and terms of the loan? Ask yourself if you can realistically meet the financial requirements of the loan.
• Is there an alternative for covering your unexpected costs? You may want to think about alternatives to an emergency loan to find the best option for your financial situation. For example, you could consider a credit card with a low introductory rate.

Everyone’s financial situation is unique. And so are the terms of each emergency loan. It’s important to do your research to decide whether an emergency loan is the best solution.

Applying for a low intro rate credit card could help you cover unexpected costs while you build your emergency fund. You can see whether you’re pre-approved before you apply. It’s quick, and checking won’t hurt your credit scores.