What do you do when you have a pressing need and need emergency personal loans?
By: Phoenix Lee/
Whenever people have a requirement for some urgent loan but cannot get the amount needed with the resources they have, they inadvertently apply for a personal loan from a bank. But getting an emergency personal loans from the bank is not possible for most people in most instances.
Getting a personal loan today has become relatively easy, but most banks take 2 – 3 weeks to process such applications, and so may not come in handy when you need urgent cash.
But there are several options available for one who needs emergency personal loans.
One such option is provided by private lenders. Such lenders may give up to $35,000 and may give you up to 12-months to pay back. The interest rate for such emergency personal loans can vary from 4 – 48 per cent depending on the tenor of the emergency personal loan.
The quicker you pay-off the emergency personal loan the lesser you pay in interest. For example, if Mr A borrows $1,000 and opts to return the money within a month, he will have to repay $1,040 – $40 in interest. But if Mr A chooses to repay the loan within 12 months, he would have to repay the lender $1,480 – $480 in interest over the 12 month period. Emergency personal loans offered by such lenders are easy to get, but they have their pros and cons.
- No collateral: Unlike other types of loans, you don’t need to produce any collateral, or security, to avail of a personal loan.
- Can be taken for any reason: Normally a personal loan is just that — for personal use. Once you satisfy the loan eligibility, the lender give you the loan, irrespective of how you put the money to use.
- Minimal paperwork: Such lenders normally do not ask you for more than a few critical documents for approving a loan.
- High interest rates: The interest rates for personal loans are very high and second only to the extremely high interest rates charged by credit card companies for credit card cash advances.
- Lots of fine print: The loan agreement has a lot of clauses in fine print, which one needs to understand thoroughly before opting for a loan.
When is it okay to take emergency personal loans?
- An urgent requirement for cash: Because of minimal paperwork, getting an emergency personal loan is a fast process. So if you are really in a tight spot and need some urgent cash to bail you out, personal loans make sense.
It is important to understand that personal loans are a good option only if the amount you require is not very big and your monthly budget can easily fit in the added expense.
One should exercise the option of taking emergency personal loans, only because they have no other option available and it is possible to pay it off in as less a time frame as possible to help them save on the interest cost.
When is it not okay to take a personal loan?
- Financing the home improvement: In case if you are looking for doing some renovations to your house, opting for an emergency personal loan is not necessary. You can do these repairs with a home renovation loan.
- Buying a car: If you are buying car, a car loan would take care of your needs. You do not need to take a personal loan for that.
- Speculative purposes: Never take a loan to invest in stock markets or other speculative purposes. This is nothing short of a gamble where you might lose out the money invested. Short-term speculative investments are not a wise option to use your money for, especially in the instance of having to opt for a personal loan.
Alternatives to a personal loan
- Home Equity Loan is a good option that can provide you loan at lower interest rates. If you are looking to borrow a large sum of money and have a property on hand, you may be able to “cash out” the property’s value by taking a term loan or an home equity loan.
- You should also utilise any investments you might have made so far, like shares, securities, fixed deposits, gold, insurance policies, etc, before taking an emergency personal loan. You can pledge these as collateral and obtain a loan against them. For instance, you can obtain a loan against the surrender value of your life insurance policy from the insurance company, and the interest rates would definitely be lower compared to the personal loan interest rates.
So, before you decide to go in for an emergency personal loan, check other alternatives with lower interest rates. Emergency personal loans may be easy to get, but does not necessarily become the best solution.
How to Secure a Personal Loan Quickly
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