Emergency loans can give you funds on short notice so you can pay for unexpected expenses like car repairs or medical bills. With these loans, you can get cash as soon as the same day you apply, and you don’t need good credit to get approved.
An emergency loan can affect your credit score in a few different ways. Read on to learn more about how emergency loans work, some types available, and the impact they can have on your credit.
How do emergency loans work?
An emergency loan is any short-term loan that’s meant for emergency purposes. Some emergency loans can be paid back by your next paycheck or in installments over a few months or years. These loans often come with easy applications that you can complete online or in store, and many lenders offer instant or quick approval decisions.
Types of emergency loans
Here are a few types of emergency loans that can get you fast funds:
A cash advance is a short-term loan that you can repay when you get your next paycheck, typically in two to four weeks. Cash advances are offered in smaller amounts, typically a few hundred dollars. Many cash advance lenders have less strict credit score requirements, so you don’t need good credit to get approved.
Title loans are secured loans that let you use your car title as collateral. Repayment lengths can range from a few weeks to a few months, depending on the lender and loan terms. Borrowers can typically receive a loan amount worth 25 to 50% of their vehicle’s appraised value. If approved for a title loan, you can keep driving your car as you repay the loan.
An installment loan allows you to borrow a large sum of money and pay it back in fixed monthly installments over months or years. These types of loans often have lower interest rates and more flexible terms. Some examples of installment loans include personal loans, student loans, auto loans, and mortgage loans.
How can emergency loans affect my credit score?
Here are some ways emergency loans can affect your credit:
Applying for a loan can temporarily bring down your score
When you apply for an emergency loan, it results in a hard inquiry on your credit score. A hard inquiry is when a lender looks at your credit report during the approval decision process. These inquiries can negatively affect your score temporarily, and will only stay on your credit report for two years.
To avoid too many hard inquiries on your credit, you can limit the number of applications you submit and first go through the preapproval process before applying for a loan. Being preapproved for a loan doesn’t guarantee that you’re approved, but it gives you a good idea of where you stand. With preapproval, you’ll only receive a soft inquiry that doesn’t impact your credit.
Making on-time payments can improve your score
Your payment history is a big factor that affects your credit score, and many lenders report loan payments to the credit bureaus. By making consistent on-time payments for your emergency loan, you can improve your credit score over time.
The bottom line
Emergency loans can be beneficial when you’re in a financial pinch and need funds fast. Cash advances, title loans, and installment loans can all get you cash as soon as the same day you apply so you can cover expenses right away. Although emergency loans can temporarily bring down your credit score when you apply, making on-time loan payments consistently can boost your score. Make sure to do your research, compare loan options, and have a repayment plan in place so that you can find an emergency loan that works for you.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.