Dealing with an emergency can put stress on your physical, emotional, and financial well-being. Insurance and savings can help, but they are not always enough. And even if you’ve planned for the unexpected, you might still need emergency financial assistance.
Read on to learn about the financial impact of emergencies, what you can do to prepare, and how an emergency loan can help during a crisis.
Table of contents
What is a financial emergency?
A financial emergency typically involves unexpected expenses that need to be paid right away. For example, you might return from vacation to find a leaking hot water heater or a burst pipe.
This is not a life-threatening emergency, but you would still have to take quick action to stop the leak, make repairs or find a replacement, and clean up the mess. And the fix might require more than just paying for a new water heater. It may involve replacing carpeting and drywall or repairing damaged flooring.
Costs can add up quickly, even if some are covered by insurance. The same is often true for other kinds of emergencies.
How do I deal with a financial emergency?
When emergencies happen, you spend time, money, and attention resolving the issue. Once you have cleared up the emergency, you might also find that it has left lingering financial obligations that are not in your everyday budget.
Of course, the best way to handle a financial emergency is to be prepared in advance, especially if the emergency includes loss of income. If that happens, paying for everyday living expenses can be difficult.
That’s why experts recommend you build an emergency fund that could cover three to nine months of expenses. A robust emergency fund will give you some time to get back on your feet.
If you are facing a financial emergency and you already have an emergency savings account, now could be the time to draw from it. If you don’t have an emergency fund, you will need to seek other options and use this experience as a reminder to start saving as soon as you have recovered.
What if I don’t have an emergency fund?
Try one or more of these other strategies to help you cover your emergency expenses:
- Lean on your network. Consider calling on family and friends for emotional support and advice. If you feel uncomfortable talking about finances with loved ones, remember that most people have faced financial emergencies at one point or another. And you may need more than just financial support. You might need help with meals or childcare while you deal with the emergency. Just having an attentive ear can sometimes work wonders.
- Explore other support systems. Depending on the situation, you may be eligible for government assistance. You can also reach out to your creditors to explain your situation and ask for help. Or maybe you can find some extra cash by rethinking your budget. Read tips on what to do while in the thick of a financial emergency.
- Check your insurance coverage. Damage to your home, car, or other property may be covered by your insurance policies. Be sure to look them over and talk to your agent or insurance company.
- Seeking emergency financial assistance. If the alternatives above won’t work, you may want to think about an emergency loan to help you get the financial help you need.
What is an emergency loan?
The term emergency loan refers to any loan you can get on short notice. Common emergency loans include:
Emergency personal loan
A personal loan for emergencies comes with several benefits and carries less risk than some other kinds of emergency loans. One appealing feature is its flexibility. A personal loan can be used to pay for medical expenses, home improvements, car repairs, and many other unexpected costs.
In addition, a personal loan often has a lower interest rate than credit cards. And there is a simple online application process and most people get a decision the same day. The money can be sent as soon as the next business day once you’re approved and accept the loan, which comes in handy for emergencies.
Credit card cash advance
A credit card cash advance lets you borrow money against your available credit limit. Weigh this route carefully before you decide on it because it could be expensive.
Some things to consider, for example, credit card cash advances might not have a grace period. That means you could accrue interest from the date of the transaction. Additionally, interest rates might be higher than for a personal loan. There might be a service fee, too.
If you are considering getting a cash advance, check your credit limit and review the terms first. The way you get cash advance funds will depend on your credit card issuer. You may be able to go to an ATM or to your bank to withdraw your cash.
As the name suggests, a payday loan gives people the cash they need now, before their next paycheck. The expectation is that the loan will be repaid when that check arrives.
For people with less-than-ideal credit health, payday loans can be easier to get because they do not usually require a credit check. But these loans are pricey: They can carry an APR of up to 400%.1 And if you do not have enough money to pay back the full amount, there could be rollover fees.
Those fees along with such high interest rates could make it even harder for you to pay back the loan—especially if you are already strained financially.
That’s why experts recommend avoiding payday loans if possible. A personal loan can give you the cash you need just as quickly, along with a sensible repayment plan.
To get a title loan, you use your car as collateral and borrow against its value. Like payday loans, title loans come with higher interest rates, do not require good credit, and are meant to be used for a short period of time. Be aware: if you do not repay a title loan, the lender can repossess your car.
Title loan lenders often insist that borrowers own their cars outright. So if you still owe money on your vehicle, you might need to explore other options.
Which emergency loan is best?
To know which emergency loan is right for you, you will need to do some research. The goal is to compare lenders and loans from several important angles:
- Interest rates and eligibility: If you have excellent credit health, you might be able to get better loan terms and interest rates. If you are still working on building your credit health, you might have fewer options, and it could be more expensive to borrow.
- Total cost of borrowing: When rates and fees are high, the total cost of an emergency loan can increase. Some lenders charge origination fees, prepayment penalties, and more. Discover® Personal Loans doesn’t charge any fees as long as you pay on time.
- Loan amount: Make sure the loan will be large enough to cover your emergency expenses.
- Funding time: Will you get the money in time to pay your bills?
- Repayment term: How long will it take to repay the loan, and will the payments fit with your budget?
When you have a good grasp of what it will cost to get an emergency loan and how you will repay it, you can apply for one that will help you bridge the gap without setting you back.
The bottom line
When it comes to financial emergencies, it’s best to plan in advance, build an emergency fund, and make sure your insurance coverage is up to date. But if you do need emergency financial help, you can apply for a personal loan from Discover. A fixed interest rate and a set regular monthly payment for the life of your loan could simplify your financial life.
Want to learn more about emergency loans? You can check your rate at any time without affecting your credit score—and the application process couldn’t be easier.Learn How to Get an Emergency Personal Loan