Emergency Loans: What You Must Know Before Getting One

Sometimes emergencies happen and you need access to cash fast. So, what do you do when your rainy-day fund is empty and you need a sizeable sum of money urgently? An emergency loan could be your only option.

Before you panic and take out the first emergency loan you come across, you would be wise to do a little research. Let’s take a look at what an emergency cash loan is and some of the things you need to consider before leaping into debt:

What are emergency cash loans?

Emergency cash loans are quite simply a type of loan that give you access to cash very quickly. Emergency loans are often small in amount and feature a much shorter repayment period than regular loans. Repayment periods tend to be anything from 1-12 months. This type of loan is designed to help people deal with unforeseen circumstances such as the need to replace a boiler, a washing machine or repair a broken-down car.

Emergency loans are similar to payday loans and instant cash loans, which are all effectively different products doing the same thing – providing quick access to cash. Emergency loans tend to be for specific unexpected expenses as outlined above, whereas payday loans tend to be used more for tiding people over with general living expenses.

The criteria for lending varies widely across lenders, depending on your circumstances. Most lenders will consider a range of criteria and will always look at your credit score. If you have a poor credit score, there are also a number of lenders offering guarantor loans that pay out on the same day, (see this list from GuarantorLoansuk).

Do you REALLY need the cash?

Emergency Loans: What You Must Know Before Getting One

While it may feel tempting to take out a loan for something, it is always best to save up for it instead, if that is at all possible. Some payday lenders and emergency cash lenders can make borrowing sound too good to be true.

Consider if your situation is truly an emergency. Does the car need repairing immediately or can you walk to work or borrow a car and manage without yours until payday? If the washing machine needs replacing, similarly can you manage by handwashing your clothes, supplemented by a few trips to the launderette until you can afford a replacement?

Think about what you would do if you weren’t able to get an emergency loan. This thinking process may help you to come up with a better alternative.

Consider other options first

If you are in a cash crisis there may be other options you can consider first.

Borrowing from family or friends should be your first port of call. You may also want to consider asking your employer for a pay advance. If you need an emergency loan to pay for unexpected car repairs and you use your car to get to work, for example, your employer may be more invested in helping you out.

It may also be cheaper to use an existing credit card. Even if you can’t pay the balance in full when you get your statement, the interest charges over a few months will be cheaper than most emergency loans. You will need to be strict with yourself paying it off though, otherwise interest will mount up.

Emergency loans have considerably higher interest rates and default charges than regular loans, so if there are any other ways you can tide yourself over, these are worth trying first. The UK’s leading debt charity, Step Change, has a useful list of who can help you in a cash crisis.

But if you have exhausted all other avenues and need access to cash quickly, you may have no other alternative than to resort to an emergency loan. Sometimes it may be the only way you can deal with a cash crisis quickly, and these days you can get a loan within as little as an hour from submitting your application (subject to meeting the lender’s criteria).

Emergency loans: shop around for the best deal

Emergency Loans: What You Must Know Before Getting One

Taking out an emergency loan requires careful consideration as they are an expensive way to borrow money. The interest and charges on emergency loans varies widely. It will genuinely save you a lot of money shopping around for the best deal.

Emergency loans: the criteria

The criteria for emergency loans across lenders varies. All short-term loan providers are regulated by the Financial Conduct Authority (FCA) who enforce the responsible lending scheme, which means lenders should only lend to you if they are sure you can afford to pay it back.

Lenders criteria usually requires the borrower to be:

  • Over 18 years old (some lenders require borrowers to meet a higher minimum age)
  • Permanently resident in the UK
  • In some form of employment
  • Not currently bankrupt

And will also consider if you have any other existing outstanding loans or credit cards, or any county court judgements (CCJs). If you have a satisfied CCJ on your credit report, some lenders may still consider lending to you.

This isn’t an exhaustive list, so you will need to check with each lender for specific criteria.

Look out for unauthorised lenders

Despite the fact that there are laws to protect consumers when it comes to loans, there are still some unauthorised lenders out there. To ensure the lender you approach is legitimate, you can search for them on the FCA register.

Understand what will happen if you can’t repay

If you take out an emergency loan and then struggle to meet the repayments, contact your lender as soon as possible. The worst thing you can do is ignore the problem. For further advice on loan debt contact the Money Advice Service.

Remember, if you are struggling to make ends meet, borrowing isn’t the answer.

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