When you're facing a hardship, an emergency loan can provide you with the funds needed to get out of a bind or back on your feet. There are several options, both secured and unsecured. Some emergency borrowing options include personal loans, peer-to-peer loans, home equity loans, pawn shop loans, cash advances and payday loans. The right option for you depends on your credit score, collateral and finances.
Personal loans from banks generally require no collateral. Your eligibility is based on your credit score and ability to repay the loan. The amounts range from $3,000 to $100,00 or more depending on your bank. Personal loan applications require information to verify your identity, access your credit report and confirm your income. You'll need to provide pay stubs, benefit statements, W-2 forms and tax returns.
If the annual percentage rate is too high or your credit isn't good, your bank may allow you to pledge collateral to secure the loan. Banks will commonly use your savings account or certificate of deposit (CD) account as collateral. Unfortunately, the collateral securing the loan is tied up until the loan is paid. Loan limits are usually equal to the amount of the collateral. Since you're securing the loan, applications are processed quickly and funds are available the same day or next business day.
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Home Equity Loans
If you don't have a savings account or CD to pledge as collateral, you can apply for a home equity loan. Your equity is the difference between what you owe and what the home is worth. You'll need to meet the lender's credit requirements and prove you can afford to repay the loan along with your mortgage payment and other debts. The process isn't as quick as a personal loan, since your home may need to be appraised. It can take two to four weeks to process a home equity loan.
Peer-to-peer lending is the process of borrowing money from individuals rather than banks. The peer-to-peer lending platforms allow you to post your application and loan needs for individual investors and institutions to view. The investors select which applicants they want to lend money, generally based on credit score and account history. According to LendingClub, qualified applicants can receive loan offers within minutes of submitting an application. Benefits for borrowers include:
- fast and simple application process
- low fixed interest rates
- no prepayment penalties
Pawn shops also offer loans secured by collateral you provide. There's no credit check or bank account requirements to get a pawn shop loan. You'll just need to provide your driver's license and an item of value. You can use a variety of items, but the particular pawn shop may have specific things they'll accept. You can generally borrow a portion of the item's retail value. According to Nolo, interest rates can range from 12 to 240 percent, depending on whether the state caps interest rates or not. If you can't repay the loan within the specified period of time, usually 30 to 60 days, the pawn shop can keep your item.
Credit Card Cash Advances
If you have a credit card, your credit card issuer may offer you the ability to withdraw cash from an ATM or send you convenience checks. Borrowing cash from your credit card is known as a cash advance. Although you can access cash right away, interest rates for cash advances are typically higher than credit card purchases. Interest begins adding up the very first day you borrow the funds, unlike purchases that have a grace period. Cash advances may be convenient, but they can be costly.
Payday loans are short-term loans that generally carry high interest rates. The loans are designed to give you fast access to cash when you're in a bind or experiencing an emergency. Due to the unfavorable terms of the loans, these are only recommended when you've exhausted all other options. In addition to interest, you can expect to pay other fees associated with the loan. Although many states cap the interest rates lenders can charge, they're still high. You can usually walk into a check cashing or cash advance store with your most recent pay stub and a copy of your bank statement to start the loan process. You can also apply for some payday loans online.