Emergency loans are typically small, unsecured loans to cover expenses under $1,000. Common types of emergency loans include personal loans, payday loans and credit card cash advances — and they’re usually used to pay pressing and unexpected bills.
Car repairs
One in three Americans do not have the cash to cover an unexpected car repair, the cost of which averages between $500 and $600, according to data from AAA. Significant repairs, like an engine or bumper replacement, can easily run into the four-figure range, beyond what many people have saved in an emergency fund.
Checking your insurance policy is a good first step before considering financing a car repair. There is a chance your policy, mechanical breakdown insurance or gap insurance will cover the repairs needed, in which case you may not need to borrow additional funds.
When to consider an emergency loan
You may find that an emergency loan is necessary to cover some kinds of repairs, especially if you do not immediately have the money or credit available to cover costs.
Standard auto insurance may not cover issues with your brakes, heating and cooling systems, engine or transmission. If a repair stands between you and reliable transportation — especially to work and other important regular events — you may decide that an emergency loan is worth borrowing.
Medical expenses
Whether you carry medical insurance, you will likely face an unexpected medical or dental bill at some point in your life. This is such a common expense that 41 percent of American adults have some kind of medical debt, according to the Kaiser Family Foundation. And unlike some unexpected costs, medical bills are rarely optional.
There are a few tips and tricks to try before financing an emergency loan to cover medical bills. First, you will want to review all charges for accuracy, especially since billing errors are relatively common. Also check that your insurance policy — if you have one — has covered all eligible costs.
Next, ask if a discount is available for paying the bill in full. You may be able to negotiate to pay a percentage of the original amount billed if you can make a lump-sum payment within 30 or 60 days of your invoice’s due date.
Lastly, inquire with your provider’s billing department to see if a payment plan may be an option. In some cases, you can arrange to make monthly payments toward the total amount due with little or no interest.
When to consider an emergency loan
An emergency loan may be in order if the above steps have not offered any solutions. If your provider demands immediate payment and you absolutely can’t cover the cost upfront, an emergency loan may protect you from your debt being sent to collections.
Dental expenses
Like medical expenses, emergency dental procedures aren’t easy to put off. If you require an emergency root canal, unexpected implant or other urgent dental procedure, you may not have the luxury of saving up and preparing for the expense ahead of time.
As with medical expenses, be meticulous about cross-checking your bill against insurance coverage, if you have it. Also, inquire about payment plans — many dental offices will allow you to pay over time in installments toward the total amount due.
When to consider an emergency loan
Like with medical bills, consider an emergency loan if you absolutely must pay the provider in the near term. Though an emergency loan may not be ideal, it is often preferable to your debt landing with a collection agency.
Funeral costs
Funeral expenses can happen suddenly and add up quickly. The average funeral in 2021 ran between $6,791 and $7,848, according to the National Funeral Directors Association. While funerals are sometimes planned expenses, they can also come on very suddenly.
Your loved one may have had a life insurance policy that fully or partially covers funeral expenses. Similarly, some people may have final expense insurance to help with these bills. If you are responsible for funeral expenses for an elderly or sick relative, you may check to see if they have insurance or savings set aside to assist with predicted funeral costs.
When to consider an emergency loan
An emergency loan may be your best option if you are responsible for unexpected funeral costs. You may qualify for a rate that is favorable compared to a credit card if charging the expenses is your only alternative.
Essentials after a job loss
Job loss can take an immediate and unexpected toll on your finances. Though you may be waiting longer than expected for your next paycheck, regular bills like rent, utilities and groceries can pile up rapidly.
An emergency loan may not be the only solution for covering your expenses in this situation, but in some cases, it may keep the lights on and the water running. Consider applying for unemployment benefits if you are eligible and consulting local aid organizations for temporary help — the United Way hosts a 2-1-1 hotline for resource connection in many communities nationwide.
When to consider an emergency loan
If you are ineligible for unemployment coverage or can’t work immediately following a job loss, you may consider an emergency loan to float expenses temporarily. Before borrowing money, there are many solutions to consider — but ultimately an emergency loan may protect you from utility shutoffs, eviction or other serious financial troubles.
Most other expenses
Emergency loans are highly flexible in that you can use them to meet the most urgent financial needs and unexpected bills. While there are some limitations regarding what you can use an emergency loan to pay for, lenders do not tend to heavily gatekeep on this front.
If a bill absolutely must be paid and you have exhausted all other options, an emergency loan can prevent further financial damage.
When to avoid emergency loans
Many circumstances may offer alternative solutions before considering financing. Remember, an emergency loan will include interest, so you will be paying back not only the amount needed right away but also the interest you’re charged to borrow.
Consider skipping an emergency loan if:
- Government assistance or a charitable gift can help. If you qualify for this type of help, you may find you land on your feet more quickly when borrowing and repayment are not needed. Research what kind of assistance is available for someone in your circumstances.
- Repayment will be a hardship. Read the fine print and repayment terms of your loan carefully. If you know you can’t make timely repayments, know that default can carry strict consequences.
- Your expense is not eligible for payment by an emergency loan. Personal loans often can’t be used for expenses like college tuition, a downpayment on a home or business-related expenses. Your lender may impose other limitations, so read the fine print before borrowing.
Emergency loan alternatives
As noted above, some circumstances may lend themselves to alternative solutions before turning to an emergency loan is the best choice. Consider the following steps before financing a loan:
- Inquire about a payment plan. Medical and dental debts, in particular, may be eligible for repayment over time. Your health provider’s office, mechanic or local funeral home may offer a payment plan favorable to the interest and terms of an emergency loan — so it’s worth asking about.
- Ask your employer for an advance. If you are securely employed, consider asking your employer for an advance on your next paycheck. While you are borrowing from your future self, you may be able to avoid interest costs by doing so.
- Seek help from local charities. If you qualify for assistance from a local charity or food bank, accepting this kind of help can save you from repayments and interest that may be a further burden on your finances.
- Consider borrowing money from family or friends. While this should not be a first option, it can sometimes be preferable to the potentially predatory rates if you can’t qualify for a traditional personal emergency loan.
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