What can emergency loans be used for?

Emergency loans are usually small, unsecured loans to cover expenses under $1,000. Personal loans, credit card cash advances, and payday loans are common forms of emergency loans. These loans have quick financing — usually the same day — and are a good option if you're in a bind and need to pay an urgent or unexpected bill.

Use of emergency loans

Emergency loans are very flexible as you can use them to meet your most urgent financial needs and unexpected bills. While there are some restrictions on what you can use an emergency loan to pay for, lenders don't tend to have too many gatekeepers on this front. Here are some examples of overhead expenses that you can cover with an emergency loan.

Car repair

A 2023 Listick survey found that if faced with an emergency expense of $1,000, less than half — 43 percent — of American adults would be able to cover it with their savings. Given that major repairs, such as replacing an engine or bumper, can easily run into the $1,000-plus range, it's not uncommon for Americans to turn to emergency loans to cover expenses.

Checking your insurance policy is a good first step before considering car repair financing. It is likely that your policy, mechanical failure insurance or gap insurance will cover at least part of the cost of the repair, in which case you will not need to obtain additional funds.

When to consider getting an emergency car repair loan

You may find that an emergency loan is necessary to cover the repairs, especially if they are large and you don't have the cash or credit available to cover the costs.

Standard auto insurance may not cover problems with the brakes, heating and cooling system, engine, or transmission. If repairs stand between you and reliable transportation—especially for work and other important regular events—you may decide that an emergency loan is worth taking out.

Medical expenses

Even if you have medical insurance, you will encounter an unexpected medical or dental bill at some point in your life. According to the Kaiser Family Foundation, one in ten Americans currently has some form of medical debt. And unlike other unexpected expenses, medical bills are rarely optional.

There are some tips and tricks that you can try before getting emergency loan financing to cover medical bills. First, you'll need to review all charges for accuracy, especially since billing errors are relatively common. Also, make sure your insurance policy - if you have one - covers all eligible expenses.

Next, ask if a discount is available to pay the bill in full. If you can make a lump sum payment within 30 or 60 days of the invoice due date, you can negotiate to pay a percentage of the original invoiced amount.

Finally, check with your service provider's billing department to see if a payment plan might be an option. In some cases, you can arrange to make monthly payments of the total amount owed with little or no interest.

When should you consider getting an emergency loan for medical expenses?

If the above steps do not provide a solution, an emergency loan may be in order. If your provider requires an immediate payment and you can't cover the cost upfront, an emergency loan can save your debt from being sent to collection.

Funeral costs

Funeral expenses can be sudden and add up quickly. The average funeral cost in the United States can range from $6,791 to $7,848. Although funerals are sometimes a planned expense, they can also happen unexpectedly.

Your loved one may have a life insurance policy that will cover all or part of funeral expenses. Likewise, some people may have terminal expense insurance to help pay those bills. If you are responsible for the funeral expenses of an elderly or ill relative, you can check to see if they have insurance or savings set aside to help with expected funeral expenses.

When to consider getting a funeral emergency loan

If you are responsible for unexpected funeral expenses, an emergency loan may be your best option. You may qualify for a better credit card rate if shipping expenses are your only option.

Essentials after a job loss

Losing a job can have an immediate and unexpected negative impact on your finances. Although you may be waiting longer than expected for your next paycheck, regular bills like rent, utilities, and groceries can add up quickly.

An emergency loan may not be the only solution to making ends meet in this situation, but in some cases, it can keep the lights on and the waters running. Consider applying for unemployment benefits if you qualify and consulting local support organizations for temporary assistance - United Way has a 2-1-1 hotline for resource connections in many communities across the country.

When should you consider getting an emergency loan after losing a job?

If you don't qualify for unemployment coverage or are unable to work immediately after losing a job, you may want to consider taking out an emergency loan to help float expenses temporarily. Before borrowing money, there are several solutions to consider — but in the end, an emergency loan can save you from utility shutdowns, evictions, or other serious financial problems.

Types of emergency loans

Emergency loans can come from a variety of sources - each with its own pros and cons. Some of the popular ways to get quick cash in an emergency are:

Personal Loans: Personal loans are generally unsecured, which means they are approved on the basis of credit and do not require collateral. Some personal lenders - especially online lenders - offer approval and financing on the same day. Personal loans are a good initial option for paying for emergency expenses, especially if you have good credit, as you can get interest rates as low as 12 percent and borrowing amounts ranging from $1,000 to $50,000 in most cases.

Payday Alternative Loans: Also known as "PALs," these loans are offered by federal credit unions. PALs have short repayment periods of one to six months, and borrowing amounts range from $200 to $1,000.

Credit Card Cash Advance: If you already have a credit card and need to cover small expenses, applying for a cash advance can also be a great option. However, cash advances come with higher interest rates than regular credit card purchases, which is something to consider before pursuing this option.

Payday Loans: Payday loans are short-term small-dollar loans that are usually due with your next paycheck. Although you will get the money instantly, they should be avoided at all costs, as they come with very high triple-digit interest rates and fees.

Car Title Loans: Car title loans use your car as collateral and allow you to borrow between 25 and 30 percent of the value of your car. Like payday loans, their short repayment periods and extremely high interest rates make them an option of last resort. Especially if you don't pay the loan on time, you could lose your car.

When should emergency loans be avoided?

Many situations may present alternative solutions before considering financing. Remember that an emergency loan will include interest, so you'll not only pay back the money you need, but also the interest you were charged for the loan.

Consider foregoing an emergency loan if:

A government grant or charitable gift can help. If you qualify for this type of assistance, you may find that you can get back on your feet more quickly without having to borrow and pay back. Find available support for someone in your situation.

Payment will be difficult. Carefully read the fine details of your loan and repayment terms. If you know you won't be able to pay on time, know that defaulting can have serious consequences.

Your expenses are not eligible for emergency loan repayment. Personal loans often cannot be used for expenses such as college tuition, a down payment on a home, or work-related expenses. Your lender may impose other restrictions, so read the fine print before getting a loan.

Emergency loan alternatives

As mentioned above, some situations may be amenable to alternative solutions before resorting to an emergency loan is the best option. Consider the following steps before granting a loan:

Ask about a payment plan. Medical loans and dental loans, in particular, may qualify for repayment over time. Your local health care provider's office, mechanic or funeral home may offer an emergency loan payment plan with flexible interest and terms — so it's a good idea to ask about it.

Ask your employer in advance. If you work securely, consider asking your employer for an advance on your next paycheck. When you borrow from yourself in the future, you may be able to avoid interest costs by doing so.

Ask for help from local charities. If you qualify for assistance from a local charity or food bank, accepting this type of assistance can save you payments and interest that could further strain your finances.

Consider borrowing money from family or friends. Although this shouldn't be your first choice, it can sometimes be better than potentially predatory rates if you can't qualify for a traditional emergency personal loan.

Bottom Line

Emergency loans can be a life saver if you are short of cash and need money on time. However, before applying for one, be sure to explore all other options and choose the type of emergency loan carefully to avoid future financial problems.