An emergency loan is required when you reach a state in life where you have some unplanned expenses, and you do not have enough cash to cover up for them. Emergency loans for bad credit are taken by people who have a bad credit score and do not have sufficient money to afford an emergency. Emergency loans can be given out by lenders sometimes in a few hours, and sometimes in a few days. These loans are given for a short duration and have to be repaid in full in a period usually not exceeding 60 days.
Emergency loans for bad credit are given at a higher rate of interest than regular loans because they are riskier and are given to people who have a bad credit rating. However, they are still prevalent because they give people quick cash in emergencies.
What is bad credit?
Having bad credit means that either you have had issues in paying back your debt earlier, or are expected to have such issues in the future. All individuals and companies are subject to credit checks and are given a credit score based on their loan repayment performance. A bad credit rating results in loans being disbursed at higher interest rates than for people with a good credit rating due to the higher risk involved.
Why do you need an emergency loan?
Different unexpected situations such as medical emergencies, bills, loss of a job, or other living expenses can put you in a situation when you have no choice other than borrowing an emergency loan.
Kinds of emergency loans
While choosing which emergency loan to apply for, you first need to see which loan fulfills your requirement, and then if you would be able to meet the requirements for getting it or not.
Personal loans can be used for any purpose, whether or not it is an emergency. However, they are usually only given to people with a good credit score because they do not take any collateral as security. They can be paid back in installments and have lower interest rates as compared to credit cards.
Payday loans are the most expensive form of getting a loan and should be considered as the last option in case of any emergency. They cannot be paid back in installments, and are given at extremely high-interest rates where the APR (Annual Percentage Rate) can be as high as 600%. Many times, people end up borrowing more to repay the first payday loan they took, and end up getting trapped in a cycle of debt.
- Credit card loans
Loan against your credit card can be taken instantaneously in case of an emergency. Even though the interest rate is lower as compared to a payday loan, it is much higher than a personal loan. Thus, before utilizing this option, cautious financial planning should be done.
- Peer-to-peer loans
Peer-to-peer loans are the loans taken from friends and family members, instead of financial institutions. As a result, the repayment terms of these loans are more relaxed, and the interest rates can also be lower. These loans come from individual investors rather than banks.
- Title loan
Title loans do not involve a credit check, and are given against an asset like a car. In case the borrower defaults on the payment, the asset custody is given to the lender. The interest rate on these loans is lower than that on other unsecured loans.
How to get an emergency loan?
As the name suggests, emergency loans are meant to be approved quickly. However, you will be required to give your personal information, such as your source of income, your ID, driving license, etc. The income that you show in the application qualifies you to reimburse the loan and henceforth improves the odds of endorsement of your application. Once this procedure has been done, the interest rates on your credit will be determined, and your application will be affirmed.
Benefits of an emergency loan
- Emergency loans don’t follow the procedure of traditional bank loans and are approved at a much faster rate. These loans can be approved within a few hours to a few business days.
- These loans don’t restrict the usage of loans and give the freedom to spend the money as you like.
- There are many options to borrow emergency loans ranging from banks to individual lenders.
- Last but not least, you can arrange an emergency loan with bad credit as well if you can convince the lender that you will pay the money back.