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6 types of emergency loans and their uses

Key takeaways

There are several emergency loan types that can fund urgent needs quickly — in some cases within one business day — including personal loans and credit card advances.
If you don’t need funds immediately, consider a home equity loan or home equity line of credit to spread your payments out over a longer period.
Payday loans and title loans should be used as a last resort since they come with steep borrowing costs and may be difficult to repay.

When you’re faced with an emergency expense, knowing what types of emergency loans are available is critical to getting you the funds you need as soon as possible. Most emergency loan types can provide you with quick access to cash, and some have long repayment terms to keep your payments low.

If you haven’t built up an emergency savings account or don’t want to use the funds in it, an emergency loan may be a good alternative. However, some bad credit emergency loan rates are as high as 400 percent with full payment required within two weeks. Learning about emergency loans in advance may help you avoid taking on unaffordable debt in a crisis.

1. Personal loans

Personal loans give you all your cash at once and are repaid in fixed monthly installment terms typically ranging between one and seven years. A key benefit of a personal loan is being able to get your cash as soon as one day after you apply, which comes in handy in an emergency.

They’re offered by banks, credit unions and online lenders. Excellent credit personal loan APRs may be below 8 percent, making them a cheaper alternative than credit cards. However, bad credit loan APRs may be over 30 percent, making them an expensive emergency financing option.

Who personal loans are better for
Borrowers with good credit who need funds urgently, want lower interest rates than credit cards and prefer a fixed payoff schedule.

Pros

Quick access to cash.
Typically doesn’t require collateral.
Lower interest rates and longer terms than other forms of emergency financing.

Cons

Steep interest rates if you have poor credit.
Loan origination fees and other fees are up to 12 percent of the loan amount in some cases.
Repayment options are shorter than home equity lending options.

2. Credit card cash advances

Credit cards, when used responsibly, can be useful tools in an emergency. Many credit cards offer a cash advance feature that may allow you to access cash from an ATM or bank branch in a crunch. Since the cash advance is tied to your existing card’s credit limit, it doesn’t require an additional credit check. While credit card cash advances may be a quick and easy funding choice, they typically have higher interest rates than your card’s standard variable APR.

There are also some serious drawbacks to consider. For one, your cash advance amount is limited by a percentage of your card’s limit, a set maximum amount or both. Interest will also start to accrue right away on a credit advance, as there often isn’t a grace period. And you’ll likely have to pay a transaction fee between 3 and 5 percent of the purchase amount. These fees can quickly add up, especially if you can’t quickly pay back the advance.

Who credit card advances are better for
Those with active credit cards in good standing who need a quick small loan and who can afford the added fees and interest charges.

Pros

Funds are accessible from any ATM.

Cash advance option may already be set up on an existing credit card.

No additional credit check required for most advances.

Cons

High rates and fees.

Borrowing amount is limited.

Interest begins accruing immediately.

3. Payday loans

A payday loan is a type of instant loan that lets you borrow $500 or less, usually without a credit check. Payday loans typically have to be repaid within two weeks or by your next pay period.

This kind of emergency loan is generally considered extremely risky because payday lender APRs can run as high as 400 percent, according to the Consumer Financial Protection Bureau.

The short repayment period combined with high fees often makes it hard for people to repay what’s owed by the due date. This can then lead to excessive lender fees, multiple overdraft charges and a cycle of debt that is difficult to get out of.

Who payday loans are better for
Consumers with poor credit who can’t qualify for any other type of emergency loan and can pay the entire balance off before their next paycheck.

Pros

Easy to qualify for, often without a credit check.
Fast funding.

Cons

Extremely high APRs.
Very short repayment period.

4. Title loans

A title loan is another type of emergency loan that gets you fast access to cash secured by equity in your car. Also called a “pink slip loan,” this option allows you to borrow against 25 to 50 percent of the current market value of your vehicle.

These loans are short-term options that have repayment periods of 15 to 30 days. Most are single-payment loans, which means you pay the entire back, plus fees, on the due date. Some title lenders may offer installment plans. You may also qualify for a title loan without undergoing a hard credit check.

Unlike some other emergency loan options, title loans are secured and require you to use your car for collateral. If you can’t repay the balance by the end of your loan term, the lender can seize your vehicle as repayment.

Who title loans are better for
Title loans may be the only option for borrowers with poor credit but who own a free and clear vehicle. They should be a last resort in a dire situation since you risk losing a source of transportation if you can’t pay the loan back.

Pros

Quick access to cash.
Easy to qualify for.

Cons

A lender can repossess your vehicle if you default on the loan.
Must own and have equity in a vehicle.

5. Home equity loan or HELOC

If you’ve racked up some expenses from a medical or home repair emergency and have enough equity in your home, you might be eligible for a home equity loan or home equity line of credit (HELOC). You may be able to borrow thousands depending on your home’s appraised value and how much you have left on your first mortgage, but it may take up to six weeks to get your funds.

A home equity loan is an installment loan that offers lump-sum funding, a fixed interest rate and repayment terms of up to 30 years. A HELOC is a revolving line of credit from which you can draw funds for a fixed time, such as 10 years, with a repayment period of up to 20 years afterward.

While the lengthy repayment terms may be beneficial when paying off larger balances, home equity products are secured and use your home as collateral. If you fail to repay your balance, your home could be foreclosed on to pay the delinquent balance.

Who home equity options are better for
Homeowners with substantial equity in their home need large loan amounts for necessary expenses but don’t need the funds immediately.

Pros

Lower rates on average compared to other options.
Longer repayment terms than most personal loan types.
Interest may be tax deductible if used entirely for home repair emergencies.

Cons

Often a slower process than other options.
Lenders can foreclose on your home if you default on the loan.
May need to pay closing costs.

6. Paycheck advances

Some employers offer paycheck advances, which allow you to receive upfront funds from your future earnings. Employers that offer this benefit may set limitations on advance amounts and how often you can access them.

There are also third-party apps like Dave and Earnin that offer cash advances that you repay with your next paycheck. There is usually a fee for each advance and you may be charged a monthly subscription or maintenance fee to use the services.

Who paycheck advances are better for
Individuals who are paid on a regular schedule and need a small, short-term loan to cover an urgent financial need quickly.

Pros

Employee paycheck advances may be interest free.
Third-party paycheck advance apps may be available.

Cons

Advanced amount is subtracted from your next paycheck.
Usually only for small amounts.

What can emergency loans be used for?

You can use an emergency loan for just about any unexpected expense you don’t have the cash to pay for. However, there are some urgent common scenarios that lead consumers to apply for an emergency loan.

Car repairs

Significant repairs like an engine or bumper replacement can easily cost more than $1,000. If faced with an unexpected $1,000 expense, more than a third (35 percent) of U.S. adults say they would borrow funds in some way to cover that amount, according to Bankrate’s Emergency Savings Report. An emergency loan might be the only path to getting your vehicle back on the road.

💡 Bankrate tip
Check your car insurance policy for mechanical breakdown or gap insurance coverage that could at least cover a portion of the repairs so you don’t have to borrow money.

Medical expenses

Even with health insurance coverage, the average U.S. employee paid $1,735 out of pocket in 2023 before hitting their deductible, according to recent data. If the provider doesn’t offer any payment plans and demands immediate repayment, an emergency loan can help you avoid collection actions.

💡 Bankrate tip
Make sure all eligible costs have been processed with your insurance company since billing errors are fairly common. Also ask if a discount is available or if you can pay the balance in full within 60 days.

Home repairs

You could face a bill ranging between $350 to nearly $5,000 for the most common emergency home repairs, based on HomeAdvisor’s most recent data. The good news is the average U.S. mortgage-holding homeowner has $300,000 worth of equity, which can be converted to cash to cover repair costs by taking out a home equity loan or a HELOC.

Just remember: You’ll have to pay the balance off when you sell the home, which could cut into your resale profit.

💡 Bankrate tip
Home equity loans and HELOCs can take two to six weeks to close, which may put you in a bind if you need home repair cash quickly.

Natural disaster

You might not think it could happen to you, but a Bankrate survey found more than half of Americans (57 percent) were financially affected by extreme weather events ranging from tornadoes to heavy snow and flooding. Although your insurance may cover the costs, an emergency loan may bridge the gap until your insurance settlement funds arrive.

Funeral costs

The sudden loss of a loved one may result in unexpected funeral costs. Even if they’re covered by life insurance, the claim may take time to process, which could leave family members or a grieving spouse searching for a way to pay the thousands of dollars that an average funeral in the U.S. costs.

💡 Bankrate tip
If an emergency loan is your only option to pay for a funeral, consider jointly applying for the loan with siblings or heirs so the responsibility for the loan doesn’t fall only on you.

How to pick the right loans for emergency bills

The right emergency loan for you depends on a number of factors, including how quickly you need the money and how much you need to borrow. If none of these fit, you may want to consider some alternatives to emergency loans before making your next move.