Emergency Loan: Here’s how to choose most suitable loan
12 November, 2024 | 11:00 IST
Life often presents unexpected financial challenges — whether it’s a medical emergency, a car repair or an urgent home renovation. In such situations, an emergency loan can offer a much needed relief from financial distress
However, with many options available, it’s important to choose the right loan for your specific situation.
An emergency loan is a type of loan that provides quick access to funds during a financial crisis. Emergency loans come in various forms, such as personal loans or credit card advances. The type of loan you choose depends on the amount you need, the urgency of funds and your financial circumstances. Selecting the right emergency loan can help you cover costs without negatively impacting your long-term financial health.
With the availability of a wide range of quick loans, it’s important to know the emergency loan types to choose the best option.
Personal loans: Personal loans are convenient for emergency funding due to their relatively quick approval and disbursement process. These loans usually come with fixed interest rates and monthly payments, making them easier to plan the repayment within your budget. Most emergency personal loans are unsecured, meaning no collateral is required. The loan approval depends on your credit score, income and employment history.
Credit cards: Using an existing credit card for emergency expenses is another option. Credit cards offer convenience as you get a buffer period to make the payment. However, the interest rates on credit cards are often higher than personal loans, and fees may apply for cash advances. Additionally, a higher outstanding amount on your credit card could harm your credit score due to increased credit utilisation ratio.
Key factors to consider for quick emergency loan approval
Choosing the right emergency loan involves evaluating a few key factors to ensure the loan fits best to your financial situation.
Loan approval time: When you’re facing an emergency, the speed of loan approval is critical. Some emergency loans can be approved and disbursed within hours or a few days. Personal loans, for instance, may take a day or two for approval, while credit card advances offer nearly instant access to funds. Digital lending apps like Moneycontrol offers access to instant personal loans through a 100% paperless process. Through the Moneycontrol app you can get the loan in just three steps — enter details, complete KYC and set-up EMI repayment.
Emergency loan eligibility: Eligibility for an emergency loan will vary depending on the lender and the type of loan. Usually, factors such as your credit score, income and employment status play a big role. Personal loans generally require a higher credit score and a stable source of income. Credit card advances, on the other hand, depend on your outstanding dues. Before applying, make sure you understand the eligibility requirements to increase your chances of approval. You can check multiple loan offers on Moneycontrol app from leading banks and choose the best one as per your eligibility. Moneycontrol provides access to instant loans up to Rs 15 lakh, with interest rates starting at 12% per annum.
Loan interest rates: Interest rates can significantly impact how much you end up paying for an emergency loan. Personal loans usually offer lower interest rates than credit cards, especially if you have a good credit score. If you need to borrow money quickly, check the interest rates on various loan types to determine which one offers the most affordable repayment terms.
Loan repayment terms: The repayment terms of an emergency loan determine how much you will pay each month and over how long a period. Personal loans often have fixed terms, ranging from one to five years, which allows you to spread the payments over time. Credit cards, however, require minimum monthly payments but come with higher interest rates, which could lead to a longer repayment period if you only pay the minimum amount.
Before choosing an emergency loan, it’s important to weigh the pros and cons:
Pros
Quick access to funds: Emergency loans are designed to provide quick access to money, making them ideal for urgent expenses.
Flexible uses: You can use an emergency loan for nearly any expense, from medical bills to home repairs.
Convenient repayment: With the quick lending apps you can choose the loan repayment tenure as per your need or from multiple options for convenient EMIs.
Cons
High interest rates: Some emergency loans, particularly credit card advances, come with high interest rates that can add up quickly.
Fees: Many emergency loans come with fees, such as origination fees or late payment penalties, which can increase the overall cost of borrowing.
Increased debt: Taking out an emergency loan adds to your overall debt burden, which may lower your credit score and increase your financial obligations.
Final words
While an emergency loan can provide much-needed relief during a financial crisis, it’s essential to choose the right type of emergency loan to minimise costs and ensure repayments without defaults. It may sound unrealistic during emergencies, but taking a few precautionary steps while availing such loans could be helpful in avoiding any financial crisis in future.
Summary
An emergency loan can offer quick relief during unexpected financial problems from meeting urgent medical expenses to sudden home repairs. Knowing the types of emergency loans and factors to consider can help you select the best emergency loan.
Disclaimer
This piece/article was written by an external partner and does not reflect the work of Moneycontrol's editorial team. It may include references to products and services offered by Moneycontrol.
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