Financial emergencies, by virtue of them being unexpected occurrences, can leave you drastically unprepared. Emergency expenses can come in different shapes and sizes and come whenever, which is why it’s important to have a quick-access remedy to address the issue.
These unexpected expenses are more common especially in a health and economic crisis caused by the COVID-19 pandemic, so having a reliable emergency fund source is a must-have.
Emergency loans come in handy in this regard, especially emergency loans for bad credit borrowers, when the economic downturn has likely caused your own credit score to take a dip.
What is an Emergency Loan?
An emergency loan is an umbrella term for financing that allows you to cover unexpected expenses that may crop out of nowhere.
The personal loan is a common type of emergency loan, and is also considered to be one of the most affordable options, but emergency loans can come in different forms, from a payday loan, payday alternative loan, credit card cash advance, and even a simple IOU from friends or family.
Related: Bad Credit Personal Loans
Can I borrow money even with bad credit?
There’s no denying that a bad credit score can limit your options when you’re borrowing money. Most lenders require a minimum credit score while looking at your credit history, debt-to-income ratio, your existing debt payment obligations (like your student loans), and more.
This is especially worrying when you’re looking for an emergency loan with bad credit. Emergency loan lenders may still be inclined to subject you to a thorough credit check before loan approval.
That doesn’t mean you should cut your losses and give up. It’s still possible to get an emergency loan with bad credit, because lenders will often look at more than just your credit score.
Keep your expectations realistic when gunning for bad credit loans, especially where cost and borrowing limitations are involved. Because of the added risk to the lender, both your interest rate and loan amount are affected–you may be limited to small loans with higher APRs, but there are a few outliers that deserve your attention.
Best Emergency Loans (2021)
Here are some of the best emergency loans and financial institutions for people with bad credit to check out:
- Best for Quick Funding: Rocket Loans
- Best for Flexibility of Repayment Terms: Avant
- Best Credit Union Emergency Loan: PenFed Credit Union
- Best Peer-to-Peer Emergency Loan: LendingClub
1. Best for Quick Funding: Rocket Loans
Qualified applicants can get loan proceeds from Rocket Loans on the same day, with a competitive starting APR of 5.97%. Keep in mind that, depending on your credit report as well along with other factors, it’s possible to not be eligible for the lowest advertised rate.
Pros:
- Higher loan amounts available compared to competitors
- Same-day loan disbursal
- Soft credit check for prequalification
Cons:
- Upfront origination fee from 1% to 6%
- No joint applications
- Limited terms for monthly payments
Additional Information:
- Loan amount range: $2,000 to $45,000
- APR range: 5.97% to 29.99%
- Terms: 30 or 60 months
- Recommended minimum credit score: Reported to be 580 but not confirmed on website
- Disbursal period: Potentially same-day funding
2. Best for Flexibility of Repayment Terms: Avant
Avant is an online lending platform that offers some of the flexible emergency loan options to bad-credit borrowers. A loan request for $35,000 with a credit score as low as 600 is possible and you can get the funds in your personal bank account within one business day of approval.
Pros:
- Prequalification available
- No prepayment charges
- Timely monthly payments build your credit because lender reports to credit bureaus
Cons:
- Higher interest rates than other lenders
- Possible upfront administrative fee of up to 4.75%
Additional Information:
- Loan amount range: $2,000 to $35,000
- APR range: 9.95% to 35.99%
- Terms: 24 to 60 months
- Recommended minimum credit score: At least 600
- Disbursal period: Within 1 to 2 business days
3. Best Credit Union Emergency Loan: PenFed Credit Union
PenFed Credit Union offers affordable financing with loan amounts as low as $600 and APRs that max out at 17.99%. Along with the competitive rates, you can expect personal loans to come without origination fees.
Pros:
- Lower maximum interest rates than competitors
- Loan amount can be as little as $600
- Co-borrowers allowed
- No origination fee, application fees, or prepayment penalties
Cons:
- Must be a PenFed member
- Limited to hard credit inquiry when applying
Additional Information:
- Loan amount range: $600 to $35,000
- APR range: 5.99% to 17.99%
- Terms: Up to 60 months
- Recommended minimum credit score: Reported to be 580 but not confirmed on website
- Disbursal period: Within 1 to 2 business days
4. Best Peer-to-Peer Emergency Loan: LendingClub
Since 2007, LendingClub lets you find personal loans with loan amounts up to $40,000 as a peer-to-peer marketplace worth considering outside traditional lender options. However, the option is less ideal when you want to borrow money for an immediate expense due to a long funding process.
Pros:
- Prequalification available
- Joint applications available
- Minimum loan amount of $1,000
Cons:
- Limited term options
- Origination fee of 3% to 6%
- Up to 4 days of disbursal period
Additional Information:
- Loan amount range: $1,000 to $40,000
- APR range: 8.05% to 35.89%
- Terms: 36 or 60 months
- Recommended minimum credit score: Reported to be 600 but not confirmed on website
- Disbursal period: Usually around 4 days
Things to Consider Before Taking Out Emergency Loans
1. Fast Funding
A crucial aspect of emergency loans is the need for immediate funding. Make sure to find a platform that can get you your loan proceeds as soon as possible so you can address your pressing expenses.
2. Terms and Conditions
Poor scores imply a certain degree of financial stress, so it’s crucial to go for flexible terms. Most lenders may be willing to lend to borrowers with credit scores in the 600s, but anything below that may be difficult.
More than that, consider terms that allow you to fulfill all of your existing monthly payment obligations to ensure that your score doesn’t get worse.
3. Lender Reputation
The first thing you should always consider when looking for personal loans and emergency loans is check the lender reputation. Take the time to research and peruse the lender’s review section before loan agreement.
4. Transparency
Hidden fees are a common undesirable when it comes to loans. Beyond simply having to pay more, cheap shots feel untrustworthy and disrespectful
Find lenders that can be transparent with all the fees they will charge you so you can budget your finances correctly.
Emergency Loan Alternatives
A lot of lenders can be willing to provide personal loans for borrowers with emergency expenses, but doing so with bad credit is a different story.
There is additional lender risk, even with secured loans, and there is sufficient data that says people with bad credit scores are more likely to default than those with good credit, and that may even be despite a good credit history or TDSR.
In the case that loans are out of the question, there may be other options you can take a look at. Here are a few bad credit emergency loan options to consider:
1. Local Credit Unions
Credit unions are member-owned nonprofits that use their revenue to benefit their members instead of letting third-party shareholders take the bigger slices of the cake.
Members can take advantage of minimal fees and lower interest rates, factoring eligibility from your value as a member without considering the numbers provided by credit bureaus.
From this set-up emerges the payday-alternative loan–financing that can range from $200 to $1,000 amounts with one to six months of repayment terms. The interest rate on these loans is capped at 28% because of federal regulations–much lower than what you can get from other institutions.
The catch is you have to be a member for at least a month before qualifying for these loans, meaning joining one just for an emergency loan can take too long. It’s also important to note that not all credit unions offer payday-alternative loans.
2. Online Lenders
Online lenders don’t have to worry about overhead costs that are common with physical businesses, so they are often more willing to provide bad-credit loans unlike the usual lender.
With this availability comes a variety of repayment terms and interest rates, with APRS going as high as in the triple digits for short-term loans.
3. Lending Circles
A lending circle is similar to a credit union in that it functions like a community organization. It works as a group of six to 12 people who take turns receiving loans from each other and paying them back monthly, with incredibly low interest rates, if at all.
Payments may also be reported to the national credit reporting agencies depending on the organization, which means you can build credit with very low monthly payments.
The only caveat is, there’s no guarantee that you’ll be the start of the circle, if you can get involved with a loan circle at all. But if you time it right, it’s the best option out there.
4. Credit Card Cash Advances
If you have a viable credit card, it might be worth taking a look at a cash advance when you’ve exhausted other options. It’s as easy as using your credit card at an ATM and inputting your desired amount.
Take note that cash advances can be expensive. Their APRs are much higher than what you would regularly get with a credit card purchase, with an added fee that ist at least 5% of the amount.
There is also a set repayment term on a credit card, which means reckless usage could have you piled under high interest debt for a very long time.
Finally, your cash advance limit may also be much lower than your card’s spending limit. You can confirm this with your bank through an online account, call, or your latest statement.
With all of these in mind, credit card cash advance is not the best option, but it’s better than settling for a personal loan with a triple-digit APR.
5. Payday Loans
Another option is to go to payday lenders for payday loans. As per its namesake, a payday loan is a short-term financing option that is commonly repaid on the arrival of your next paycheck.
They usually come with fast approval and disbursal for loan funds, but the reason why payday loans shouldn’t be anything but a desperate option is their staggering interest rates, with APRs that can go as high as 400% or more. Even worse is that full payment is expected within a few weeks.
Other things you need to know
1. How big of a loan can I get with poor credit?
It’s possible to get a good sum from online lenders. They can go as high as $25,000 even for an applicant with a poor credit score, with the caveat of throwing high interest rates in the mix. Read more about small personal loans.
It is however more important to ask how much you should get instead of how much you can get. The smaller the loan, the likelier the approval and the lower the rates.
2. How Fast Can I Get an Emergency Loan?
It’s no question that looking for emergency financing means you require funds as soon as possible.
Don’t worry, near-instant funding is possible, and many personal loan lenders offer the option especially for eligible applicants.
It’s common for a personal loan to arrive in your bank account the same day as your loan application, but note that some options may take several days to a few weeks for loan funding. Some may even take longer just to process your loan application.
It’s also possible that before you access the cash, your personal bank or credit union may hold the funds a lender deposits into your account for a short period.
3. How Can You Prepare for an Emergency Expense?
A study from the US Federal Reserve back in 2018 found that 40% of adults aren’t prepared for a $400 emergency expense.
A better means of addressing unexpected expenses is to have money set aside instead of resorting to loans. So if you don’t have an emergency fund, start one now.
Here are some times to do so:
- Track your finances. Try to keep a record of every purchase you make, down to the smallest amount. Awareness of your situation is the first step to budgeting.
- Formulate a budget. With your expenses and spending habits in mind, organize your finances. You can even use budgeting software to simplify the process and tracking.
- Cut costs. Take a look at your spending and cut down on some of them, especially impractical money sinks. This frees up funds for saving and debt payments.
- Open an account for savings. Tuck the money away in a separate, high-yield savings account to keep yourself from using it while also letting it grow.
- Develop good money habits. With consistency in the above exercises, you can run cruise control with the mindset that savings should be separate, making the process easier.
The Bottomline
Bad credit is a considerable hurdle when getting an emergency loan, but it is by now means an impossible wall to scale. Lenders will also look at your credit history, TDSR, and other factors, with some even considering these factors heavier than our credit score.
Also note that:
- Prequalification should be a priority when looking at loan options to ensure your credit score won’t dip any lower during application.
- You should only borrow the amount you need, nothing more.
- You should explore every option available to you, with consideration of not only your current situation, but the future state of your finances.
- You should prepare an emergency fund as soon as possible.
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