What You Need to Know About Emergency Loans & Financial Aid

Vishakha Patel
April 23, 2020

Emergency Loans: What Works Best For You 

Needing an emergency loan can be scary and overwhelming, emergencies come fast, hard and don’t necessarily allow you a lot of time to slow down think and process. Emergency loans can have steep costs and unmanageable terms, before you go down this path try to exhaust all of your other options. However, if you do need an emergency loan, there are reasonable options. Emergency loans come in all shapes and sizes and the better your credit is, the better terms you qualify for. That doesn’t meet that a good credit score is required, there are reasonable options and repayment plans out there.

As you do your research on what loan will match your needs the best, remember that you’re not alone. Thousands of Americans apply for emergency loans every day. Maybe you need this loan because you unexpectedly got furloughed from your job, or maybe your car needs a new tire, or there’s an emergency bill that you have to pay – this list is long. According to the Federal Reserve, 40% of Americans can’t cover a $400 emergency expense. So please remember that you are not alone, so take a deep breath and make sure you get the type of loan that you really need.

Evaluate Your Options

Emergency loans are a classification of a loan that will get you cash fast, there are five main types of emergency loans: payday loans, credit card cash advances, title loans, and pawnshop loans.

Payday Loans: A payday loan is a short-term, small-dollar loan that typically comes with a fast application process. Most payday loans also don’t require good or high credit scores. Payday loans typically have a high APR which averages around 400%. Payday loans are usually paid back all at once and are due by your next payday. Most borrowers who opt to use payday loans usually have emergency expenses which they need money fast

Possible Finance: A Possible loan is an installment loan up to $500 that’s repaid every few weeks and is fully paid in a few months. APRs are higher than personal loans but much lower than payday loans and bank overdrafts. Because Possible reports to credit bureaus, you’ll be able to build credit history with on-time payments. Best of all, there’s no FICO credit check!

Personal Loans: Personal loans are typically installment loans that have a fixed interest rate. These loans range in amount principal and duration of the loan depending on the lender, some loans can be for $1,000 while others for $5,000. The flexibility of a personal loan could be very beneficial for an emergency situation.

Credit Card Cash Advances: A credit card cash advance is taking out an available balance on your credit card as a short term loan. However, most credit card companies will typically charge very high interest for cash advances, higher than normal credit card purchases. Credit card cash advances can also come with high processing fees that can add additional unseen expenses--the last thing you need when you’re already seeking emergency funds and financial aid.

Title Loans: If you’re a car owner you can consider a title loan. A title loan is another secured loan that uses your car’s title as collateral. This loan is usually repaid in a month, however, lenders often offer to renew or rollover the loan at significant fees or costs. However, because the loan is secured by your car, your car can also be seized if you are unable to repay the loan back. 

Pawn Shop Loans: Pawn Shop loans are typically secured loans that require you to use an item of value as collateral. The pawn shop will hold on to the item of value and can sell the item if the cash loan is not paid back. A pawn shop’s loan amounts vary on the collateral you bring in, commonly pawned items include: jewelry, collectibles, electronics, and firearms. The loan amount you’ll receive is usually 25-60% of the resale value of the pawned item and the pawnshop may require proof of purchase for your item. A pawn shop loan does not involve an application process nor good credit making it a fast option.

Alternatives to Emergency Loans

If none of the emergency loan options work for you, there are alternative routes you can take to get the money you need.

Low-Interest Credit Cards: If you have good credit, you may qualify for a low-interest credit card that has a 0% intro APR that lasts for a certain period of time. If the debt is paid back within the promotional period you can use this credit card as a short-term loan. However, it’s important to remember that applying and taking out a new credit card will initiate a hard inquiry pull on your credit which can negatively affect your credit score. If you do choose this route be careful to pay off debt associated with the credit card timely because accrued interest can build quickly if not paid off in time.

Student Loan Repayment Plans: The weight of student loan debt can be really heavy, advice on what repayment plan is best for you depends on so many factors. Each federal and private loan owner has multiple ways to pay back student loan debt, a popular one is the income-driven repayment plan structure. This allows the borrower to pay back their loan in proportionate amounts to their income. Make sure to look into all of the options your student loan lender offers by reading the website or scheduling a call with a company associate.

Medical Bill Repayment Plans: Many medical providers, including hospitals, dentists, physician offices, have payment plans that can be utilized to pay off bills. Contact the billing department of the hospital to request a payment play, most hospitals don’t charge interest on these payment plans. Aim to engage with the billing department before your bill becomes delinquent. This makes for affordable monthly payments over time, allowing you time to pay off these bills without damaging your credit score.

Home Equity Line of Credit: Also known as a HELOC, a home equity line of credit, allows you to use your home as security for a revolving credit line that can be used for larger expenses or can be used to consolidate higher-interest debt. A HELOC loan has a variable interest rate that can lead to fluctuating payment amounts. A HELOC loan also risks a possible foreclosure on your home as a worst-case scenario, so plan wisely if you choose this option.

How to Plan for Your Next Emergency

There’s no way to predict your next emergency, but you can start planning for it in small ways. The easiest way to do this is by setting yourself up with a high yield savings account. If you already have one, you’re one step ahead! Next, adopt a financial plan that allows you to put money in the account when you pay other bills. By setting aside as little as $25-50 from every paycheck you can start building yourself a nest to protect yourself next time there’s an emergency situation.

COVID-19 Stimulus Check

The federal government has approved a $2 trillion economic stimulus package for both American businesses and citizens. This money was used to release the Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion for businesses. The rest of the money was used to provide up to $1,200 stimulus payments for all eligible U.S. adults and $500 per qualifying child. You may have seen this on the news, you may have gotten the push notifications, but you also may still have a lot of questions. A recent FinanceBuzz survey revealed that 55% of Americans are confused about the stimulus plan and how much money they can expect to receive from it, so if you have some questions, you’re not alone.

Here are some basic facts about your potential stimulus payment. Your income will dictate your eligibility for stimulus payments. Income thresholds are your adjusted gross income on your 2019 tax return (if you haven’t filed your 2019 tax return, your 2018 tax return will be used). The breakdown is as follows if you are single with no children dependents and earn up to $75,000 you will receive a full $1,200. If you are single with no children dependents and earn more than $75,000, but less than $99,000, you may receive some amount of money, but it may not be the full $1,200. The full $1,200 stimulus payment will be reduced by $5 for each $100 that your income exceeds the first threshold, so using this example, if your income is $80,000, your stimulus would be reduced by $250, leaving you with $950.

Payments are being sent via direct deposit if your bank is already connected to the federal government or through the United States Postal Services. Receiving Social Security will not prevent your ability to receive a stimulus payment. However, you may not receive a check if you didn’t file 2019 or 2018 taxes, your earnings place you above the required income level or you are a dependent.  

Just Remember

Before you fill out an emergency loan application take a minute to check if the repercussions of the loan are manageable. Remember you have options and read the terms of your loan agreement before signing your name. Understanding what you’re agreeing to will prevent future stress. Try to find repayment terms that allow for practical repayment amounts, flexible repayment terms, and low finance charges.
And if you really need one, check out Possible Finance, a friendlier more flexible emergency loan!

Vishakha Patel

Vishakha is the Compliance Officer at Possible Finance. She's passionate about informing communities historically trapped in debt cycles. She lives in Seattle with her partner and puppy, and loves to cook!

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