There are times when we suddenly need money, such as for a medical emergency, car repair, or urgent home maintenance.
In these situations, an emergency loan can provide much-needed relief. However, it’s important to select the right loan option to avoid adding more financial stress.
What is an Emergency Loan?
An emergency loan is designed to provide quick financial support during urgent situations. These loans come in different forms, such as personal loans or credit card advances.
The right loan for you will depend on the amount you need, how urgently you need it, and your financial situation.
Choosing the right loan will help you manage your emergency without disrupting your financial planning.
Types of Emergency Loans
There are several types of emergency loans available today. It’s crucial to understand which one fits your needs the best.
Personal Loan
A personal loan is a common choice during emergencies because it is typically easy to get and is approved quickly.
These loans offer fixed interest rates and fixed EMIs, making them easier to manage.
Personal loans are usually unsecured, meaning no collateral is required. Approval depends on your credit score, income, and job history.
Credit Card
If you have a credit card, it can be used in emergencies. The benefit is that credit cards often provide a grace period for repayment.
However, credit card interest rates are usually higher than personal loans, and cash advances can come with extra fees.
Additionally, carrying a high balance on your credit card can negatively impact your credit score.
Things to Consider for Quick Approval
Loan Approval Time
When you need money urgently, getting approved quickly is crucial. Some loans can be approved within hours or a couple of days.
For instance, personal loans can be approved in one or two days, while credit card advances offer instant access to funds.
Digital lending apps like Moneycontrol provide instant personal loans through a 100% paperless process, which involves just three steps: filling in your details, completing KYC, and setting your EMI.
Loan Eligibility
Every loan has specific eligibility criteria, usually involving checks on your credit score, income, and job status.
To qualify for a personal loan, you typically need a good credit score and stable income. For a credit card advance, your outstanding balance is also considered. Before applying, check your eligibility.
On apps like Moneycontrol, you can view multiple bank offers and select the loan best suited to your eligibility.
You can even secure loans up to Rs 50 lakh, starting with an interest rate of 10.5% per annum.
Interest Rates
The interest rate determines how much you will repay in the end. If you have a good credit score, you can get a lower interest rate on a personal loan.
Credit card interest rates, especially on cash advances, are usually higher.
Repayment Terms
Personal loans come with fixed repayment terms, usually ranging from 1 to 5 years, allowing you to plan your monthly EMIs.
In contrast, credit cards require a minimum payment each month. However, paying only the minimum can extend the loan period and increase the interest you owe.
Advantages and Disadvantages of Emergency Loans
Advantages:
Emergency loans provide quick access to money, which can be used for any expense.
Digital lending apps allow you to choose an EMI plan that fits your budget and preferences.
Disadvantages:
Some emergency loans, especially credit card advances, come with high interest rates.
Additional charges, such as processing fees or late payment fees, may increase the total repayment amount.
Taking out another loan can increase your financial liabilities, potentially affecting your credit score.
