What Is An Emergency Loan and How Does It Work?

When the going gets tough, loans come in handy. An emergency loan is a type of unsecured loan, which is usually taken out by people who are experiencing financial difficulty. If an emergency loan isn’t paid back on time, then interest can accrue, and debt collectors can be dispatched to collect the lender’s money. For this reason, make sure that you only borrow when you’re confident that you will be able to repay it.

In this article, you will find a comprehensive guide to borrowing money in an emergency:

Why Do You Need A Loan?

Before you begin searching for deals, you need to be confident that a loan is right for you. Some things do not justify an emergency loan, such as buying fancy clothes or walkaround money for nights out. Not repaying a loan can have dire consequences, so they aren’t to be taken lightly. Acceptable reasons for taking out an emergency loan include home repairs, vehicle repairs, paying back other loans and bills, and keeping up with store repayment plans [if you use the “layaway” scheme to purchase things]. With that said, if something feels like an emergency to you, then it is worth borrowing money for.

Checking Your Credit Score

If you are confident that you are borrowing for the right reason, then you can go ahead and check your credit score. If you have made bad financial decisions in the past, then you may struggle to find a lender who will lend to you. With that said, there are some specific lenders who lend to borrowers with bad credit that you can use. Most lenders who lend to people who don’t have a good credit history will charge high-interest rates, but this is the price that you pay for not maintaining your credit score.

Finding the Right Lender

If you have checked your credit score, and you are happy with what you have found, then you can go ahead and find a lender that’s right for you. It’s important to emphasize again, there are loans available to people with bad credit, so don’t feel hopeless if yours appears poor. There are things you need to consider when searching for a lender, from their interest rates to their industry reputation. Read reviews, conduct research, and check out what consumers have to say about them online.

Researching Interest Rates

When you have found a lender that you’re interested in, then you should research their interest rates and compare them with their competition. With any loan, you want to find a lender that offers its services at the lowest interest rate possible. Interest is the amount of money that is tacked onto your loan, included in your repayments. If a lender’s interest rate is high, that means that you will end up paying more for your loan than you should.

Borrowing Confidently

If you don’t repay your loan, debt collectors can be sent to your house and your credit score can be marked with a default. If this were to happen, then your chances of borrowing money again in the future would be slim to none. A default on your credit score can also stop you from being able to get a mortgage, a credit card, and a car on finance. Before you go ahead and make an application, make sure that you are confident that you can repay your loan. Sit down and work out your finances for the coming months, factoring in all of the repayments that you will have to make. If it seems doable, then go ahead.

Making An Application

If you’re satisfied with the lender’s interest rates, then you can go ahead and make an application. The application process for most emergency loan lenders is very brief, consisting only of questions about your income and lifestyle. You may be asked to upload photographs of your identification so that the lender can verify that you are who you say you are. Unfortunately, loan fraud is very common. Lenders do this in order to protect your financial record and ensure that they are dealing with the right person, instead of a fraudster impersonating you.

Receiving Your Pay-out

Once you have made your application, you can usually expect to receive your pay-out within an hour or two. Some lenders may take longer, though in the emergency loan industry this is unusual. Once you have received your pay-out [which will be paid directly to your bank account], you can go ahead and use it for whatever it is that you have taken the loan out for. Make sure that you do use it for its intended purpose, as you may not be able to get an additional loan on top of the one that you have already taken out.

Paying Back Your Loan

Make sure that you stick to your repayment program. The lender will agree on this with you when you make your initial loan application. Repaying your loan usually takes place over the course of a few months, though for larger loans you can pay it back for up to a year. You need to remain faithful to your repayments. If you get into the habit of delaying payment, missing payment, or making your payments late, the lender will refer your case to a debt collector, who has the power to repossess your belongings.

Borrowing Again

If you repay your loan on time and according to your payment plan, then the lender will likely lend to you again. Making a second application is usually much easier than your first one is. You simply need to select the amount that you want to borrow – assuming that you’re logged into your user account, that is – and you can borrow it immediately. The better your relationship with the lender, the more likely that they will lend to you again. You build your reputation with them by making all of your repayments and borrowing from them frequently.

Emergency loans are a great way to get money when things are rough. You do need to honor your repayments and make them regularly, however. If you don’t, you can get into a lot of trouble, financially and legally.