Emergency loans are a type of small personal loans that have a fast funding timeline.
Uses of Emergency Loans
Emergency loans are extremely flexible as you can use them to meet urgent financial needs and unexpected bills. Although there are some restrictions on what an emergency loan can be used to pay for, lenders are usually not strict in this regard. Here are some examples of common expenses that can be covered by an emergency loan.
Car Repairs
A 2023 Bankrate survey found that if faced with an emergency expense of $1,000, less than half of adults in the United States – 43 percent – would be able to cover it using their savings. Since major repairs, such as engine or bumper replacements, can easily cost more than $1,000, it is not uncommon for Americans to turn to an emergency loan to cover these expenses.
It is wise to check your insurance policy before considering financing car repairs. There is a chance that part of the repair cost may be covered by your insurance policy, such as mechanical breakdown insurance or gap insurance, in which case you might not need to borrow additionally.
Medical Expenses
Whether you have health insurance or not, you are likely to face an unexpected medical or dental bill someday. According to the Kaiser Family Foundation, nearly one in ten Americans faces medical debt. Unlike other unexpected costs, healthcare bills are rarely optional.
There are some tips and tricks that you can try before financing an emergency loan to cover healthcare bills. First, you’ll want to review all charges to verify their accuracy, especially since billing errors are relatively common. Also, check to ensure that your insurance policy – if you have one – covered all eligible costs.
Next, ask if there is a discount available for paying the bill in full. You may be able to negotiate to pay a percentage of the original billed amount if you can make a payment of a certain amount within 30 or 60 days of the bill’s due date.
Finally, inquire with your healthcare provider’s billing department if you can get a payment plan. In some cases, you can arrange monthly payments for the total amount due with little or no interest.
Home Repairs
A 2023 survey by Angi found that the average American household spends $1,667 on emergency home repairs. While some of these repairs may be covered by your insurance policy, it can take a few days to weeks to receive the funds. Furthermore, you may have restrictions on how you can use the money, and filing a claim may temporarily raise your insurance premium.
An emergency loan can be a good option for urgent home repairs not covered by your insurance policy. Similarly, it can be a good alternative if you need to fix a plumbing or electrical issue that could cause further damage to your home if not addressed immediately, as these loans provide funding the same day or the next day.
Repairs and Other Expenses After a Natural Disaster
According to a Bankrate survey, more than half of Americans (57 percent) have been affected by severe weather events in the past decade. These events include hurricanes, tornadoes, wildfires, earthquakes, heavy snow, and floods.
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Although your insurance policy may help, along with grants and government loans, this assistance is often limited, and getting funds can take a long time.
An emergency loan can be a good option after a natural disaster if you need to cover urgent expenses, such as replacing spoiled food or dealing with property damage that requires immediate attention. They can also be helpful in bridging financial gaps you may face after receiving assistance from a charity or government agency until you can get back on your feet.
Funeral Costs
Funeral costs can arise suddenly and add up quickly. The average funeral in the United States can cost between $6,791 and $7,848. While funerals can sometimes be planned expenses, they can also happen very suddenly.
The person you love may have a life insurance policy that fully or partially covers funeral costs. Similarly, some individuals may have final expense insurance to help cover these bills. If you are responsible for the funeral costs of an elderly or sick person, you can check if they have insurance or savings set aside to help cover the expected funeral expenses.
Essentials After Job Loss
Job loss can immediately and unexpectedly impact your finances. While it may take longer than expected to receive your next paycheck, regular bills like rent, utilities, and groceries can accumulate quickly.
An emergency loan may not be the only solution to cover your expenses in this situation, but in some cases, it may help you keep the electricity and water on. You might consider applying for unemployment benefits if you qualify and consulting with local assistance organizations for temporary help – United Way hosts a hotline at 2-1-1 to connect to resources in many communities across the country.
When to Avoid Emergency Loans
Many circumstances may provide alternative solutions before considering financing. Remember that an emergency loan will involve interest, so you will be paying back the amount borrowed plus the interest charged for borrowing.
You may want to bypass an emergency loan if:
- Government assistance or charitable grants can help. If you qualify for this type of assistance, you may find it easier to get back on your feet when borrowing and repayment aren’t necessary. Research what type of help is available for someone in your circumstances.
- Repayment will be difficult. Read the fine print of your loan terms and conditions carefully. If you know that you will not be able to repay on time, be aware that defaults may carry severe consequences.
- Your expense is not eligible to be covered by an emergency loan. Personal loans often cannot be used for expenses like college fees, a down payment on a home, or business-related expenses. Lenders may impose other restrictions on you, so read the fine print before borrowing.
Alternatives to Emergency Loans
As mentioned above, some circumstances may call for alternative solutions before resorting to an emergency loan as the best option. Before financing a loan, consider the following steps:
- Inquire about a repayment plan. Medical and dental debts, in particular, may qualify for repayment over time. Your healthcare provider’s office or local funeral home may offer a favorable repayment plan for interest and terms compared to an emergency loan – so it’s advisable to ask about that.
- Inquire about an advance. If you are employed, consider asking your employer for an advance on your next paycheck. While you are borrowing from yourself in the future, this could help you avoid the costs of interest.
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- Seek help from local charities. If you qualify for assistance from a local charity or food bank, accepting this help may alleviate repayment and interest burdens that could further strain your financial budget.
- Since this is not the first option, it may sometimes be better to borrow from friends or relatives instead of facing potential interest rates if you do not qualify for a traditional personal emergency loan.
About cash liquidity applications. Another alternative is to obtain cash liquidity from applications like Dave or Clover. These apps allow you to borrow cash against your next paycheck at a significantly lower cost than payday loans and can provide instant funding.
Conclusion
Emergency loans can be a lifesaver if you are short on cash and need funds promptly. Before applying for an emergency loan, be sure to explore all other options and evaluate the type of emergency loan, as well as its terms and your ability to repay it easily, to avoid future financial troubles.
Source: https://www.aol.com/emergency-loan-uses-6-scenarios-210053729.html
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