How to Get an Emergency Loan if You Have Bad Credit

Man looking out window.

No one wants to take out an emergency personal loan, but sometimes life can hand us financial predicaments. Maybe the dog needed an emergency trip to the vet, or the car broke down and required an expensive repair. Not only is the cost a source of stress, but so is the emergency itself. It’s normal to experience a double dose of anxiety, fear, and worry in these situations.

Other common debt triggers include medical emergencies, divorce or separation, job loss or reduction, major home repairs after a natural disaster, or stepping in to help another family member.

Many families don’t have wiggle room in their budget to handle sudden, unexpected costs, and recent inflation has made paying bills that much harder. Nearly two-thirds of American families live paycheck-to-paycheck, according to a 2022 LendingClub report. Even folks who earn six figures are struggling to cover costs, depending on where they live, with 48% living paycheck-to-paycheck.

If you have bad credit, it’s even tougher to find a lower-interest personal loan (also called an installment loan). Poor credit compounds the situation because it reduces your options. Here’s what to know about emergency personal loan products if you have bad credit.

How Does Your Credit Score Affect Emergency Loan Terms?

The lower your credit score, the more limited your options are for a favorable loan. A poor credit score may lead to a higher interest rate, higher fees, or a low loan amount—or you might not qualify for a loan at all. Traditional banks and credit unions use your credit score as one component to calculate your loan terms.

However, these institutions typically don’t provide small personal loans ($3,000 and under). You’re probably going to be limited to payday loans, or an online lender such as Upstart, Best Egg, or Avant.

Because some of these online lenders specialize in serving borrowers with poor credit, a low credit score may not be a barrier. These alternative lenders may weigh evidence of satisfactory income more heavily than credit score. However, you won’t have access to low interest rates with a low credit score – those are reserved for consumers with stellar scores.

What Risks Should I Be Aware of with Emergency Personal Loans?

Try to avoid payday loans (or fast cash loans) whenever possible. These lenders charge high interest rates and may require you to pay back the loan in full within 14 days or by the end of the month, which can be difficult for someone facing a financial emergency.

Beware of companies offering guaranteed loans for an upfront fee. These loans may be scams because no one can guarantee you’ll receive a loan. Legitimate lenders won’t ask for an upfront fee to guarantee a loan.

Research lenders and look for online reviews. Make sure you understand the terms being offered. Interest rates and fees on small, personal loans tend to be high, even from legitimate online lenders, especially on loans for people with poor credit. Rates will usually be higher than the lender’s advertised rate, which is almost always reserved for those with pristine credit.

Less Risky Alternatives to an Emergency Loan

Savings. If you have savings to dip into, that’s the best way to avoid the high-interest trap of an emergency loan. Of course, many people with a financial emergency don’t have adequate savings to cover it. If you don’t, consider whether you could borrow from family or friends or ask for an advance on your paycheck.

Credit card. Believe it or not, putting an unexpected expense on a credit card, even one with a high APR, is usually a better bet than taking an emergency loan from a payday or online lender. If your card doesn’t have a sufficient credit limit or you don’t have a credit card, work on building credit and opening a card so you have a working alternative before an emergency pops up.

Retirement savings. If you have a 401(k) or IRA, you may be able to borrow against the balance in the account. The particulars of the loan or withdrawal will depend on the rules of the retirement savings account you’re trying to borrow against. If you’re making an early withdrawal from an IRA, you should expect to pay a fee (typically 10%). If you’re taking out a loan against your 401(k) you may be barred from making further contributions until the loan is repaid. Borrowing against your retirement comes with risks, so make sure you understand what’s at stake before borrowing.

Payday alternative loan. If you belong to a credit union that offers payday alternative loans (PALs), you might be able to qualify. They’re a much more affordable option to payday loans or online lenders. If you aren’t a member of a credit union that offers these types of loans, ask about eligibility requirements for membership. PALs come in small amounts ($1,000 and below), interest rates are capped at 28%, and they allow repayment in one to six monthly installments.

Where Can I Get an Emergency Personal Loan?

If you have no alternative but to turn to a payday or online lender, MMI recommends exploring the online lender option first. It’s a better option than risking a debt-trap cycle with a payday lender. Three online lenders that are well-reviewed are Upstart, Best Egg, and SeedFi.

If cash is so tight that an unexpected emergency can throw your finances into total disarray, it’s time to talk to an expert. The debt and budget experts at MMI can help you evaluate your budget and create a plan to shed debt, trim your spending, and start saving for rainy days. We’re here to help with confidential counseling.

Tagged in Loans, Managing a loss of income, Build your credit score

Courtney Lynch. Courtney Lynch is Director of Industry Relations at MMI, where he helps promote financial wellness in underbanked and underserved communities.
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