Why Personal Loans Are Good For Emergencies | Bankrate (2023)

Do you have the funds to cover an unexpected financial emergency? A recent Bankrate survey found that just 43% of Americans can afford a $1,000 surprise bill. If you can relate, it can be tempting to resort to high-interest credit cards or borrow the funds from friends or relatives. But a personal loan might be a better option.

You can get the cash you need quickly — most lenders have a simple online application process. Andmany personal loans come with flexible terms and monthly payments that won’t stretch your budget too thin.

Why are personal loans good for emergencies?

Personal loans are great for emergency expenses because of their flexibility. They are far more affordable than payday loans and credit cards that often have sky-high interest rates and exorbitant fees.


When you have an unforeseen expense, you may need to pay for it right away. If the engine in your car broke, for example, you’d want to fix it as soon as possible since you depend on your car to get around.

Depending on the lender, you may apply for a personal loan online quickly from the comfort of your own home and receive a quick or even instant decision. Upon approval, you may be able to get the money that same day, within 24 hours or in a few days.

Low interest rates

When you compare personal loans for emergencies to other options, you’ll find that they come with low interest rates. The higher your credit score, the lower the interest rate you’ll be able to secure. A low interest rate can save you thousands of dollars on the overall cost of your loan.

If you don’t have the best credit yet need a personal loan for an emergency, don’t worry. Many online lenders have more lenient requirements than other financial institutions and may also look at factors like your income and employment history when deciding whether to approve you for a loan and what your rate will be.


Personal loans also come with flexible repayment terms. Most lenders offer loan terms between one and five years, which is beneficial for a few reasons.

You’ll likely get an affordable monthly payment that works for your budget, especially if you get a competitive interest rate. And you won’t pay a fortune in interest like you would with a credit card since it’s already factored into the monthly payment when you take out a personal loan.

What are the cons of emergency personal loans?

Personal loans can be helpful if you’re faced with an emergency. However, they won’t always be the best option. If you aren’t careful, they could wind up being an expensive debt that costs you much more than your emergency.

Best rates reserved for good credit

Although there are dozens of lenders that work with borrowers who have bad credit, you may face higher rates. They won’t be as high as most payday loans — but they may rival high-interest credit cards. To qualify for the best rates, you will need to have good to excellent credit, which is typically considered a score of 670 or higher. If you don’t, a personal loan may still be a good option for an emergency, but you should also consider other alternatives as well.

Additional fees can be a huge added cost

There are some personal loans that have no fees. But many will have late fees alongside origination fees and prepayment penalties. Late fees can be avoided, but an origination fee — which is wrapped into the annual percentage rate of your loan — is a common cost. Lenders may charge up to 10 percent of the loan amount as an origination fee. When they do, you will wind up borrowing more to cover your emergency expense.

Collateral may be required

Personal loans are frequently unsecured, which means you are approved based on your credit and income. However, some lenders may require collateral — additional property that secures your loan in case you default. This is frequently the case when you turn to bad credit lenders. Without collateral, you may face higher rates or may not be approved for the loan.

What can I use emergency loans for?

The most common uses for emergency loans include medical bills and repairs, but they can be used to cover almost any expense.

  • Medical bills: If you or a loved one has to go to the emergency room, for example, and your insurance policy doesn’t cover the trip in full, an emergency loan can cover the out-of-pocket costs. Depending on your insurance policy, out-of-pocket healthcare costs may be anywhere from 10% to 100% of the cost of your service. They can quickly add up to thousands or tens of thousands of dollars or more.
  • Car repairs: No matter what type of car you drive or how new it is, there’s a chance it will require a repair at some point in time. An emergency loan may pay for a simple repair such as new brakes or a more complex repair such as a new transmission. According to AAA, regular repair costs are usually between $500 and $600 or more.
  • Home repairs: A leaky faucet, a running toilet, a broken furnace and cracked siding are all examples of issues you may face as a homeowner. Fortunately, an emergency loan can help you keep your home in optimal shape when systems break down. The cost of home repairs varies greatly but HomeAdvisor estimates that they range from $3,984 to $22,584.
  • Everyday bills: If you lose your job, get your hours cut, or are unable to work for any reason, you may need to take out an emergency loan to pay for your mortgage or rent, utilities, groceries and other bills. While monthly bills depend on a number of factors including your family size and location, the average American family spends $2,003 per month on their household bills.

Where can I get emergency loans?

Emergency loans are offered by credit unions, banks and online lenders. Here’s what you should know about each option to decide which is best:

  • Credit unions: Credit unions may lend you money even if you have fair or poor credit. The caveat is that you must be a member of a credit union to qualify for its products and services.
  • Banks: If you apply for an emergency loan from a traditional bank, you’ll likely have to meet higher credit score or income requirements. Also, you may not get the funds as quickly as you need them.
  • Online lenders: Online lenders can process your application entirely online and get you the money you need quickly. Most also allow you to prequalify so you can find out what loan rates and terms you could qualify for before you apply. This can help you avoid multiple hard credit checks that may take a toll on your credit.

Top 3 best lenders for emergency loans

These lenders are worth considering if you’re experiencing an unexpected financial emergency and need fast cash:


Upstart offers personal loans from $1,000 to $50,000 with terms between three and five years. Upstart is an ideal emergency loan option because the lender looks beyond your credit score to determine if you’re a good fit for funding. But if you have a solid credit rating, you could qualify for an APR as low as 6.7 percent, and there are no prepayment penalties. Funding is available as soon as the next business day.


Avant caters to consumers with fair credit or limited credit history. They also disburse loan proceeds as soon as one business day following approval, and you can access between $2,000 and $35,000 payable over one to five years. Personal loan APRs are between 9.95 percent and 35.97 percent and an administration of up to 4.75 percent is assessed to each loan. Still, the lender is worth considering in a financial emergency due to its accessibility by those who don’t have perfect credit and need fast funding.


Upgrade is another alternative if you need fast funding to cover an emergency. Like the others mentioned here, loans are generally funded within one business day following approval. But what sets them apart is the extended loan terms – between two and seven years – that can make your monthly payments more affordable. Loan amounts are between $1,000 and $50,000 with APRs from 8.49 percent to 35.97 percent. The minimum credit score requirement is just 560, and you’ll pay an origination fee of 1.85 percent to 9.99 percent.

The bottom line

While no one wants to go into debt following an emergency, personal loans are a good alternative to credit cards or just letting the bills pile up.

If you’re facing an immediate financial need, take a few minutes to compare loans from lenders known for quick approvals, then apply to the one that best meets your needs. Once you’ve paid your immediate bills, you can start coming up with a plan for paying off your new loan. You should also start thinking about building an emergency fund to avoid similar issues in the future.

Frequently asked questions

    • You’re welcome to tell your lender that you’re in an emergency. This could help, but could also backfire because some lenders might be hesitant to lend money if you’re admitting you’re in a bind and might have trouble making payments. You’re better off applying for a loan from a lender known for quick approval and funding.

    • Many personal lenders that specialize in quick approvals and quick funding can get money to your bank account as soon as the next business day. Some even offer same day funding if you apply early in the day and have exemplary credit.

    • Most lenders do place limits on how you can use personal loan funds. However, they are usually limited to saying you can’t use the borrowed money for college tuition, illegal activities, or gambling.Given that most emergency loans are personal loans, you can reasonably expect to be able to use them for whatever financial hardship you’re facing, such as a car repair or upcoming bill.


What is the best answer for why you need a personal loan? ›

The most common reasons to get a personal loan include emergency expenses, major purchases, home repairs, or milestones. A personal loan may be the right option if you have a good credit score, and your costs fall under these categories.

Why is a personal loan better? ›

Personal loans are a good way to consolidate and pay off costly credit card debt. You'll use the funds toward necessary expenses. Other good reasons to use personal loans include paying for emergency expenses or remodeling your home.

What are three reasons you think it is ok to borrow money from the bank? ›

Here's a look at five top reasons that you may want to apply for a loan today.
  • Buy a new car. When your older car starts showing signs of age, you are liable to find that the costs of owning it are growing too. ...
  • Invest in an improvement to your home. ...
  • Consolidate debts. ...
  • Tap into your home's equity. ...
  • Grow your business.

What five good reasons does the article give for taking out and spending a personal loan? ›

  • Consolidate debt. Consolidating debt is one of the most common reasons to borrow a personal loan. ...
  • Cover emergency expenses. ...
  • Home improvement projects. ...
  • Finance funeral expenses. ...
  • Help cover moving costs. ...
  • Make a large purchase. ...
  • Cover a major life milestone. ...
  • Pay for a vacation.
Aug 31, 2022

What do you say when asking for a loan? ›

Your banker will need to understand some general information about your request, such as:
  1. How you plan to use the money.
  2. The amount of money you are requesting.
  3. Your desired loan terms.
  4. How you plan to pay back your loan.
  5. And collateral to be used.
Aug 17, 2020

How do you explain a personal loan? ›

A personal loan is a type of loan that allows flexible use, short- to moderate-term repayment options and relatively quick funding. Whether you're trying to consolidate high interest debt, start a business or pay an expensive medical bill, a personal loan can help you accomplish your goal.

When should you use a personal loan? ›

A personal loan is a line of credit that can be used at your discretion. People commonly use them to cover home repairs, medical bills and other unexpected one-time expenses, to pay for weddings and other major life events or to consolidate credit card balances and other existing debt.

What is the purpose of your loan? ›

The purpose of a loan is the reason why a person applies for funds from the lender. This could be anything from debt consolidation, marriage expenses, medical emergencies, overseas travel and education related expenses, home renovation etc.

Which loan is better personal? ›

Top Personal Loans Plans in India 2023
S.No.Personal Loan PlansInterest Rates
1.HDFC Bank Personal Loan10.50% p.a. onwards
2.ICICI Bank Personal Loan10.50% p.a. onwards
3.Bajaj Finserv Personal Loan13.00% p.a. onwards
4.Fullerton India Personal Loan11.99% p.a. onwards
6 more rows
May 9, 2023

What are two reasons why people borrow money? ›

Why Do People Borrow Money?
  • Reason 1: They don't want to wait. It's better to wait until you can afford something before you buy it. ...
  • Reason 2: They need to buy something REALLY big. Remember how it's better to save money to buy things yourself? ...
  • Reason 3: They have an emergency.

What are the 3 most important things to consider when borrowing money? ›

  • You need a reputable lender. ...
  • Borrowing from family or friends can be tricky. ...
  • The total cost of borrowing is more important than interest rates. ...
  • The reason you want to borrow matters. ...
  • Making a repayment plan may help you pay off debt faster. ...
  • There are many different ways to borrow money. ...
  • Loan agreements can vary.
Apr 21, 2023

How is borrowing money good or helpful? ›

Borrowing money is a lot easier than paying it back. Smart borrowing can be convenient and help you achieve important goals like buying a home, buying a car, or going to college. Having too much debt can make it difficult to save and put additional strain on your budget.

What are 4 reasons people borrow? ›

There are many reasons you may need to borrow money, such as remodeling your kitchen, buying a new car, paying off credit card debt, helping the kids pay for university or making a major purchase. Depending on your borrowing need, here are some options to consider on your loan or line of credit.

What is one example of why someone would want to take out a loan? ›

A common reason that people take out a personal loan is to consolidate their debt. Debt consolidation is a way of combining multiple streams of debt from multiple creditors. A benefit of this is that instead of having to remember and plan to pay a series of different creditors, you can just pay one.

How do you spend loan money wisely? ›

Below are a few tips and tricks to help you manage your loan effectively.
  1. Say “no” to variable rate loans. ...
  2. Don't worsen your debt with more debt. ...
  3. Pay off more than just the minimum payments each month. ...
  4. Always read the fine print and negotiate. ...
  5. Only aim to use 35% or less of your total available credit.
Nov 14, 2021

How do I write a good loan proposal? ›

Tips to write an effective commercial loan proposal
  1. Use simple, plain language. Avoid technical terms and acronyms. ...
  2. Don't forget that your proposal's purpose is to show your company at its best. Sell yourself!
  3. Throughout the proposal, focus on showing why your venture will succeed. ...
  4. Image counts.

How do you politely borrow money examples? ›

It's a good idea to make small talk before bringing up the issue in order to avoid seeming uncaring. For example, don't just walk in and say, “Hey, I need some money. Can you lend it to me?” Instead, ask them how they're doing, and see what is going on in their lives before getting into the money.

How do I write a simple loan request? ›

Tips For Loan Request Letter
  1. Describe the reason for the loan in detail. Be brief and include the relevant details of applying for the loan.
  2. Attach the necessary supporting documentation. ...
  3. Identify the amount of money you need. ...
  4. Be polite and professional when addressing the reader.
Nov 28, 2022

What is key fact sheet for personal loan? ›

The Key Facts Statement (KFS) is usually a simple, page-long table containing a snapshot of the key information about a loan. Lenders offer loans with different terms and conditions (T&Cs), which contain important information the customer must know — like the identities of the lender(s), pricing, tenure etc.

What factors affect the amount of a personal loan for which you may be approved? ›

Factors that can affect your Personal Loan eligibility
  • Credit Score. Your credit score is an indicator of your credit history, i.e., your loan repayments and credit card bill payments. ...
  • Monthly Income and Debt-to-Income Ratio. ...
  • Age. ...
  • Employment Status. ...
  • Lender Relations.

What does a personal loan look at? ›

Most personal loans are unsecured, meaning they're not backed by collateral. Instead, lenders look at factors like credit score, debt-to-income ratio and cash flow when assessing a borrower's application. Personal loans have fixed interest rates, so the monthly payment is the same for the life of the loan.

What is the risk of a personal loan? ›

There can be serious consequences if you don't make your loan payment by the due date: your lender can request that you pay the full amount of the loan at once. your lender might have the right to take something that you own, such as your car, if you have a secured loan.

Is a personal loan good or bad debt? ›

High-interest loans -- which could include payday loans or unsecured personal loans -- can be considered bad debt, as the high interest payments can be difficult for the borrower to pay back, often putting them in a worse financial situation.

What are some advantages and disadvantages to borrowing? ›

Business owners should weigh the advantages and disadvantages of bank loans against other means of finance.
  • Advantage: Keep Control of the Company. ...
  • Advantage: Bank Loan is Temporary. ...
  • Advantage: Interest is Tax Deductible. ...
  • Disadvantage: Tough to Qualify. ...
  • Disadvantage: High Interest Rates.

How to make money from a personal loan? ›

5 Ways to Use a Personal Loan to Make Money
  1. Invest the Loan in a Business. This is a high-risk strategy and not something that should be attempted without first considering the consequences of an unsuccessful investment. ...
  2. Buying and Selling Used Goods. ...
  3. Buy Property to Rent. ...
  4. Savings Accounts. ...
  5. Stocks and Shares.
Jul 29, 2019

Is getting a personal loan good for credit? ›

Taking out a personal loan is not bad for your credit score in and of itself. However, it may affect your overall score for the short term and make it more difficult for you to obtain additional credit before that new loan is paid back.

Do most personal loans get approved? ›

You are almost certain to be approved by at least some lenders for a personal loan if you have good credit, make enough money to easily repay your loan, have been at your job for a while, and your debt-to-income ratio is below 35% -- even when factoring in the payment on the loan you're applying for.

Who is more likely to approve a personal loan? ›

Improve your credit score

The higher your credit score is, the more likely you'll get approved for a personal loan. To improve or maintain your credit score, keep the following factors in mind. Payment history: Lenders want to see that you have a history of making timely payments.

What is the biggest advantage of borrowing money? ›

Answer and Explanation: The biggest advantage of borrowing money instead of issuing stock is the tax benefit. Interest on debt securities, like loans or bonds, is tax deductible. This means that companies can reduce their taxable income by the amount of interest paid on their debt.

What is the biggest advantage of borrowing money such as a loan? ›

What is the biggest advantage of borrowing money, such as a loan or a bond, instead of issuing stock in order to raise capital? it stores value.


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