Life is unpredictable and unexpected expenses might arise at any moment. Maybe it’s an urgent medical bill, a home repair that just can’t wait, or your car is breaking down at the worst possible time. When stuck in a tight spot, a personal loan might just be your ticket out of financial trouble. Here’s how this financial tool can save the day and get you back on track.
What is a Personal Loan?
A personal loan is a form of financial arrangement where the borrower receives a set amount of money from the lender that can be repaid through scheduled, fixed payments. This type of loan can be used for various purposes, such as managing unexpected expenses, funding major purchases, or consolidating debt. The loan amount can vary widely, often between $1,000 and $100,000 and the repayment term typically spans from one year to seven years.
A good thing about personal loans is that they are unsecured. This means, you don’t require any collateral (car, house or other assets) to get them.
How Can Personal Loan Work for Emergencies?
During a financial emergency, the first thing that you would need is quick cash, and that’s what personal loan is all about. The process of applying for the loan starts with an application, where the borrower must provide information regarding income history, credit score along with the amount they want to borrow.
Only after successful approval, the funds are disbursed by the lender into your bank account. The entire process might take 24 hours or even a week, depending on the lender that you choose.
What Makes Personal Loan a Good Fit for Emergencies?
There are several reasons that make personal loan a reliable option for emergencies, and these include:
- Quick Access: Without a doubt, a standout benefit of personal loan is its quick turnaround time. As mentioned earlier, after approval, the funds are available within 24 hours. This is extremely important, especially when you have to promptly manage the emergency costs.
- Fixed Payments: Personal loans come with a predictability of fixed rates on interest along with monthly payments. This stability is a great advantage over the variable rate credit cards that often fluctuate and end up impacting your budget.
- No Collateral Required: Being unsecured, while going for an emergency loan you don’t have to put your assets as collateral. It basically reduces the risk, ensuring you are able to get the required funds without having to put anything in line.
- Longer Loan Terms: Many lenders out there have a longer loan term for personal loan. Usually, the repayment terms can be one to seven years, making it easier to calculate the payment and how much interest you may have to pay with time.
Common Emergencies Managed with Personal Loan
Personal loans provide versatility that can be applied to many urgent situations. You can consider opting for them to cover:
- Medical expenses (emergency medical treatments, prescriptions, or urgent critical care)
- Home Repairs (unavoidable urgent repairs such as a broken roof or damaged plumbing system)
- Car Repairs (sudden breakdown of car, accidents, or related expenditure)
- Major Life Events (family emergencies, travel emergencies or sudden legal expenses)
What to Consider Before Applying for a Personal Loan?
Emergencies often leave the applicant in a sense of hurry, so they might commit mistakes and end up regretting later. To avoid such situations, here are a few things that you need to look after before applying for a personal loan:
- Credit Score: Your credit score affects both, the terms of loan and interest rate. A higher score helps in getting a loan at a competitive interest rate.
- Debt-to-Income Ratio: Lenders often evaluate how much income of the borrower is already being used to pay debts. A lower ratio can improve the chances of approval.
- Lookout for fees: Strictly pay attention to origination fees or other prepayment penalties, as this can have an impact on the total cost of loan.
- Review the Loan Terms: Do ensure that all terms and conditions of the loan- be it the monthly payment or repayment period fit your budget.
Bottom Line
When facing an emergency expense, personal loans can be your best bet. However, for favorable rates on interest and terms, focus on reducing any existing debts and boosting your credit score. In addition to that, don’t forget to compare different lenders so that you can find a suitable one that meets your needs.
