Emergency cash can come from a variety of places. Ideally, you’ve got an emergency fund built up so you can borrow from yourself. If not, you may need an emergency cash loan. There are ways to find cash when disaster strikes, but you should educate yourself on which avenue will expose you to the least amount of risk.
Loans From Banks and Credit Unions
A bank or credit union should be your first choice for an emergency cash loan. 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 a bank in a variety of ways:
- A cash advance 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 or personal loan
When applying for loans, don’t forget to compare banks with your local credit unions. You might get more personal attention at a credit union, which could improve your chances of approval. Often, a large bank will only look at data from your loan application.
Home equity loans and lines of credit use the value you've 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. Be careful because sometimes these equity loans have floating interest rates.
Unsecured personal 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.
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 it's typically more than what you're charged for purchases.
Consider Collateral Before You Borrow
Before you borrow, think carefully about any type of collateral you'll 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 it at risk.
If you default on the loan, the lender can claim your home. Because the note is secured with your home, the bank is taking less of a risk, so you can get a loan for a larger amount and often receive a lower interest rate. You may also be able to pledge other collateral like cars, boats, motor homes, and other property.
It's best to borrow without putting important assets at risk (when that option is available).
Loans From Friends or Family
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 or emergencies of their own.
If you do borrow from friends or family, make sure the terms of the loan are clear and make your payments on time.
Loans From Strangers
You may also be able to borrow from strangers using 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.
Emergency Cash Loans to Avoid
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. Payday loans are dangerous, though, and things can easily end badly when you use them.
The problem with payday loans 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. Additionally, it won’t keep you from scraping yourself up in the future.
Payday lenders often charge several hundred percent interest. 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 get a little bit of cash, but you risk losing an important asset—your vehicle.
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 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, vehicle, or couch that you enjoy. You could either sell the items and get out of the emergency relatively unscathed, or you could pay off debt for several years. If you use a payday loan, you might spend a lot more than you borrowed in the first place.