Emergency loan uses: 6 scenarios where they can be helpful
Key takeaways
Emergency loans are a type of small personal loan with a quick funding timeline.
Urgent car and home repairs, unexpected medical bills and paying for essentials after a job loss or natural disaster are some of the most common uses for emergency loans.
Exhaust all other options, including requesting a cash advance from your employer, borrowing money from friends and family or seeking assistance from the government and other organizations, before considering an emergency loan.
Emergency loans are typically small, unsecured loans to cover expenses under $1,000. Common types of emergency loans include personal loans, credit card cash advances and payday loans. These loans feature quick funding — usually within the same day — and are a good option if you’re in a bind and need to pay for a pressing or unexpected bill.
What can emergency loans be used for?
Emergency loans are highly flexible in that you can use them to meet the most urgent financial needs and unexpected bills. While there are some limitations regarding what you can use an emergency loan to pay for, lenders tend not to heavily gatekeep on this front. Below are some examples of common expenses you can cover with an emergency loan.
Car repairs
A 2023 Bankrate survey found that if faced with a $1,000 emergency expense, less than half — 43 percent — of U.S. adults would be able to cover it using their savings. Given that significant repairs, like an engine or bumper replacement, can easily run into the four-figure range beyond $1,000, it’s not uncommon for Americans to turn to an emergency loan to front the expense.
Checking your insurance policy is a good first step before considering financing a car repair. There is a chance your policy, mechanical breakdown insurance or gap insurance will cover at least a portion of the repair cost, in which case you may not need to borrow additional funds.
When to consider an emergency loan for a car repair
You may find that an emergency loan is necessary to cover repairs, especially if they’re larger and you don’t have the money on hand or credit available to cover the costs.
Standard auto insurance may not cover issues with your brakes, heating and cooling systems, engine or transmission. If a repair stands between you and reliable transportation — especially to work and other important regular events — you may decide that an emergency loan is worth borrowing.
Medical expenses
Whether you carry medical insurance, you will likely face an unexpected medical or dental bill at some point in your life. According to the Kaiser Family Foundation, nearly one in ten Americans have medical debt. And unlike other unexpected costs, medical bills are rarely optional.
There are a few tips and tricks to try before financing an emergency loan to cover medical bills. First, you will want to review all charges for accuracy, especially since billing errors are relatively common. Also, check that your insurance policy — if you have one — has covered all eligible costs.
Next, ask if a discount is available for paying the bill in full. You may be able to negotiate to pay a percentage of the original amount billed if you can make a lump-sum payment within 30 or 60 days of your invoice’s due date.
Lastly, inquire with your provider’s billing department to see if a payment plan may be an option. In some cases, you can arrange to make monthly payments toward the total amount due with little or no interest.
When to consider an emergency loan for medical expenses
An emergency loan may be necessary if the above steps have not offered any solutions. If your provider demands immediate payment and you absolutely can’t cover the cost upfront, an emergency loan may protect you from your debt being sent to collections.
Home repairs
A 2023 survey by Angi found that the average American household spends $1,667 on emergency home repairs. Although some of these repairs may be covered by your homeowners insurance policy, it can take anywhere from a few days to weeks to get the funds. What’s more, you may be limited as to how you can use the funds, and filing a claim could cause your premium to increase temporarily.
When to consider an emergency loan for home repairs
An emergency loan could be a good option for urgent home repairs not covered by your homeowners insurance policy. Likewise, it can be a good alternative if you need to repair an urgent plumbing or electrical issue that may cause further damage to your home if not assessed immediately, as these loans typically offer same- or next-day funding.
Repairs and other expenses after a natural disaster
According to a Bankrate survey, over the last decade, more than half of Americans (57 percent) have been financially impacted by an extreme weather event. These include tornadoes, hurricanes, wildfires, earthquakes, heavy snow and flooding.
While your homeowner insurance policy can help, along with government grants and loans, this assistance is often limited, and getting the funds can take a while.
When to consider an emergency loan for covering expenses after a natural disaster
An emergency loan can be a good option after a natural disaster if you need to cover urgent expenses, such as replacing spoiled food or dealing with property damage that requires immediate attention. They can also be helpful to bridge any financial gaps that you may have after receiving help from a charitable organization or government agency until you get back on your feet.
Funeral costs
Funeral expenses can happen suddenly and add up quickly. The average funeral in the U.S. can cost between $6,791 and $7,848. While funerals are sometimes planned expenses, they can also come on very suddenly.
Your loved one may have had a life insurance policy that fully or partially covers funeral expenses. Similarly, some people may have final expense insurance to help with these bills. If you are responsible for funeral expenses for an elderly or sick relative, you may check to see if they have insurance or savings set aside to assist with predicted funeral costs.
When to consider an emergency loan for a funeral
An emergency loan may be your best option if you are responsible for unexpected funeral costs. You may qualify for a rate that is favorable compared to a credit card if charging the expenses is your only alternative.
Essentials after a job loss
Job loss can take an immediate and unexpected toll on your finances. Though you may be waiting longer than expected for your next paycheck, regular bills like rent, utilities and groceries can pile up rapidly.
An emergency loan may not be the only solution for covering your expenses in this situation, but in some cases, it may keep the lights on and the water running. Consider applying for unemployment benefits if you are eligible and consulting local aid organizations for temporary help — the United Way hosts a 2-1-1 hotline for resource connection in many communities nationwide.
When to consider an emergency loan after a job loss
If you are ineligible for unemployment coverage or can’t work immediately following a job loss, you may consider an emergency loan to float expenses temporarily. Before borrowing money, there are many solutions to consider — but ultimately, an emergency loan may protect you from utility shutoffs, eviction or other serious financial troubles.
When to avoid emergency loans
Many circumstances may offer alternative solutions before considering financing. Remember, an emergency loan will include interest, so you will be paying back the amount needed immediately and the interest you’re charged to borrow.
Consider skipping an emergency loan if:
Government assistance or a charitable gift can help. If you qualify for this type of help, you may find you land on your feet more quickly when borrowing and repayment are not needed. Research what kind of assistance is available for someone in your circumstances.
Repayment will be a hardship. Read the fine print and repayment terms of your loan carefully. If you know you can’t make timely repayments, know that default can carry strict consequences.
Your expense is not eligible for payment by an emergency loan. Personal loans often can’t be used for expenses like college tuition, a downpayment on a home or business-related expenses. Your lender may impose other limitations, so read the fine print before borrowing.
Emergency loan alternatives
As noted above, some circumstances may lend themselves to alternative solutions before turning to an emergency loan is the best choice. Consider the following steps before financing a loan:
Inquire about a payment plan. Medical and dental debts, in particular, may be eligible for repayment over time. Your health provider’s office, mechanic or local funeral home may offer a payment plan favorable to the interest and terms of an emergency loan — so it’s worth asking about.
Consider an advance. If you are employed, consider asking your employer for an advance on your next paycheck. While you are borrowing from your future self, you may be able to avoid interest costs by doing so.
Consider a cash advance app. Another alternative is getting a cash advance from an app like Dave or Klover. These apps allow you to borrow cash against your next paycheck at a much lower cost than a payday loan and can offer instant funding.
Seek help from local charities. If you qualify for assistance from a local charity or food bank, accepting this help can save you from repayments and interest that may further burden your finances.
Consider borrowing money from family or friends. While this should not be a first option, it can sometimes be preferable to the potentially predatory rates if you can’t qualify for a traditional personal emergency loan.
The bottom line
Emergency loans can be a lifesaver if you’re tight on cash and need the funds in a timely manner. Before applying for one, make sure you’ve explored all other options and evaluate the type of emergency loan, as well as its terms and your ability to comfortably repay it, to avoid future financial headaches.
