n emergency loan is a loan that covers your expenses in case of an emergency. There are a few kinds of emergency loans, but they almost always come with very short terms (usually weeks or months) and high interest rates and fees.
While you should try to plan your finances so that you have an emergency fund for unexpected costs, that may not always be possible. Sometimes emergencies come up when you least expect them, and an emergency loan might be the only thing available to fend off an even bigger problem.
Why might you need an emergency loan?
An emergency loan usually comes with a short term, sometimes as little as a week or two. They’re also generally offered to people with less-than-perfect credit. The combination of those two factors means that an emergency loan usually has very high interest rates and fees.
If you can, it’s a good idea to put extra cash into an emergency fund before you have an emergency. But if you’re in a tight situation and don’t have an emergency fund, there’s not much you can do about it at that moment. Some situations that might require an emergency loan include:
- Your car breaks down, and if it doesn’t get fixed, you won’t be able to get to your job.
- Your utilities (gas, electric and water) are in danger of being shut off.
- There is a problem with your paycheck and you aren’t getting paid when you expected.
Types of emergency loans
An emergency loan does not have a strict definition; it’s a catchall for short-term loans that are meant to be used only in emergencies. Here are a few types of loans that could be considered emergency loans.