Emergency Cash Loans
Emergency cash can come from a variety of places. Ideally, you’ve got an emergency fund built up—so you'll just borrow from yourself. If not, you may need an emergency cash loan. There are ways to find cash when disaster strikes. However, you must educate yourself on which avenue may expose you to the least amount of risk.
Loans From the Bank and Credit Unions
A bank or credit union should be your first choice if you're getting a loan to cover emergency expenses. Other lenders might promise fast money and easy approval, but those promises often come at a cost—typically high-interest rates and unfavorable terms. You can get emergency cash loans from the bank in a variety of ways:
- A charge on your bank-issued credit card
- A home equity loan
- A home equity line of credit (HELOC)
- An unsecured loan—also known as a “signature” loan
When applying for loans, don’t forget to compare banks with your local credit unions. You might get more personalized attention at a credit union, so you may have a better chance of getting approved. Often, a large bank will only look at data from your loan application.
Home equity loans and lines of credit use the value you have accumulated in your home to issue a loan. The primary difference is that the HELOC allows you to withdraw funds over a set period while the equity loan gives the funds borrowed in a lump sum. However, be careful because sometimes these equity loans can have floating interest rates.
Unsecured loans are harder to get because the lender has nothing but your signature and handshake to secure the note. These loans will usually have a higher interest rate, require payback in a shorter period, and will probably be for a lower dollar amount.
Also, you need to understand that taking a cash advance from your bank-issued credit card will cost you more than the amount you borrowed. These cash advances will charge interest and other charges. But, if you have exhausted other sources, they may be an option.
Consider Collateral Before You Borrow
Before you borrow, think carefully about any type of collateral you will pledge to secure the loan. Pledging an asset such as your home—if you use a home equity loan or home equity line of credit—means you're placing the risk on your home. If you default on the note, the lender can claim your home or the financial portion of your home equal to the loan. Because the note is secured with the collateral of your home, the bank takes less risk. So, you can get a loan for a larger amount and often will receive a lower interest rate.
Other collateral you may be able to pledge includes items such as cars, boats, motor homes, and other property. Start by looking at unsecured personal loans, and only pledge collateral if you need to.
Consider the worst-case scenario: if this emergency deteriorates and you are unable to repay the loan, what happens? By putting your home on the line, you've made it available to your creditors. It's best to borrow without putting important assets at risk (when that option is available).
A Little Help From Your Friends
Instead of going into debt for an emergency cash loan, consider talking with your network of friends and family. If you’ve suffered a hardship, they may be willing to help. Of course, don’t be offended if you don’t get money from them. Giving you a loan may be more risk than they can afford to take and they may have budget concerns of their own. Also, remember, they could end up with their own emergencies any day.
The Help of Strangers
You may also be able to borrow from strangers known as peer-to-peer (P2P) lending. Peer-to-peer Lending websites will connect you with individuals—and sometimes institutions—who are willing to lend money. In many cases, these P2P loans will be on terms that are more favorable than you'll find at a bank.
Payday Loans – Dangerous Emergency Cash Loans
If you don't have sufficient credit and income to qualify for a loan, traditional borrowing may not be an option. As an option of last resort, payday loans might help you get through the hard times. But it is impossible to overstate this, payday loans are dangerous, and things can easily end badly when you use them.
You really need to be careful about using payday loans. The problem with them is that they most likely will make your situation worse. A payday loan for emergency cash is like a band-aid—it won’t heal you, and it’ll fall off sooner or later. In addition, it won’t keep you from scraping yourself up in the future.
Remember that payday loans can easily cost you several hundred percent APR. In other words, they are extremely expensive loans (and if you didn't have the income and credit to qualify for a traditional loan, how are you going to repay an expensive payday loan)?
Title loans are a similar type of high-cost loan. You can get a little bit of cash, but you risk losing important assets such as your automobile. If you lose your car, will you lose your ability to get to work and earn an income?
Emergency Cash Loan Alternatives
Ultimately, you need to have an emergency fund. If you don’t have one today, start to build one for the next event. Also, consider your assets. Can you sell something (or several somethings) to cover the costs of this emergency? That’s going to be a much better option than taking on debt.
Consider the possibilities. You might have a nice TV, auto, or couch that you enjoy. You could either sell the items and get out of the emergency relatively unscathed, or you could end paying off debt for several years (or more). If you use a payday loan, you might spend a lot more than you borrowed in the first place (and that might be more than it costs to purchase a brand-new TV).