Life is unpredictable and we would all agree to this fact. You never know which way your life would go and what you would be facing in the next couple of days. There may come a day when financial emergencies strike, especially when least expected. It could be in the form of a sudden medical expense, a car repair, or an urgent home repair, or several other unexpected costs wreaking havoc on your budget. These are the moments when you would badly need emergency personal loans. This emergency cash would be nothing less than a lifeline for you. It would bring your breath back and keep you going in tough times. But there are a lot of things you must know before applying for a personal loan for emergencies. Dive into it and understand what you should do while applying for an emergency loan online or offline.
What is an Emergency Personal Loan?
Well, the fundamental question you should have an answer to, right? If explained in formal terms, emergency personal loans are financial tools that are designed to provide quick cash during your tough circumstances. In simple words, an emergency loan is all there to provide you with some cash when you are in dire need of it. Unlike other kinds of loans including personal loans, home loans, and car loans, these are unsecured loans and this means you do not need to provide any collateral to get it. These loans offer a swift solution when you need funds urgently and hence, they have a faster approval process compared to other loan types.
Interest Rates on Personal Loan for Emergencies
Whether it is an emergency loan or a loan for your home or car, interest rates play a significant role. It determines your monthly installments and other charges you need to pay every month or on a contract basis. Imagine you availed an emergency loan with an annual percentage rate (APR) of more than 20%, would you be able to repay it on time as you would end up paying a lot of interest on the principal amount. Hence, understanding the APR helps you assess the true cost of borrowing. When you have low APRs, you would have less expense over the loan term, saving you money in the long run.
Fees and Charges on Emergency Loans
Always explore all the details of the emergency loan before applying for it. Apart from interest, you may need to pay various fees such as origination fees, late payment fees, or prepayment penalties. If you are not aware of it, you would not be able to strategize your repayment plans. So, make sure you do familiarize yourself with these charges so that you can easily avoid unpleasant surprises. Also, you should opt for lenders with transparent fee structures and minimal hidden costs.
Significance of Credit Score
Loans and credit scores go hand in hand and you should be aware of it. It is your credit score that helps you get the right loan as it influences loan approval and interest rates to quite an extent. A higher credit score means you would get an emergency loan with better loan terms. On the other hand, if you have a low credit score, then be prepared to pay higher interest rates. Also, if your credit score is extremely low, usually around 500, then it can also lead to your emergency loan rejection. Checking your credit score beforehand allows you to anticipate these potential challenges and explore ways to improve your creditworthiness.
Secured Vs. Unsecured Loans
There are usually two types of loans – secured loans and unsecured loans. Secured loans are basically those that require collateral and on the contrary, unsecured loans do not involve any asset pledging or putting collateral to work. These emergency personal loans usually fall into the unsecured category, which means they do not require collateral. So, you need not worry about the same while availing an emergency personal loan.
Also Read: How Different Loan Lengths Affect Payments?
Repayment Plan Strategy
Before you commit to a loan, you should always have a repayment plan that aligns with your budget. You should understand the monthly payments, loan duration, and total repayment amount so that you can prevent financial strain. This would also ensure you comfortably meet your obligations. You can also look for lenders that offer flexibility and this would allow you to plan the repayment schedule as per your financial situation.