For a lot of people, there is no room in their budget for emergencies. As everything becomes more expensive, even the most frugal folks may have little wiggle room in their budget to accommodate an extra expense. You can hope, pray and cross your fingers, but things can go wrong when you least expect it and often require a loan.
Whether it’s a burst geyser that needs urgent repairs or a medical bill, it can be incredibly stressful when you don’t have an emergency fund or extra money to pay these unexpected bills.
What to Consider Before Applying for a Loan
If you are in an emergency, it’s best not to panic and review your options. When there’s an emergency, it’s common for people to make a rash decision, but the consequences of deciding without thinking it through may cost more in the long term.
Instead, take a breather and calmly work through your options, one of which may be to take a loan, but there are several loan types, so it’s important to know what these are and which you may qualify for.
Before applying for the first loan you come across, consider the following:
Your Credit Score
If you don’t know your credit score, it’s a good idea to find out what it is before you apply for a loan. In most cases, banks and traditional lenders will only offer personal loans to folks with good credit, so if your credit score is low, you may waste time applying to a bank only to be rejected and then having to look for an alternate lender. A good credit score is typically 600 and above.
Your credit score is calculated by taking into account the five factors below:
- Payment history
- Amount of money you owe
- Length of credit history
- Credit mix
- New credit applications
Your credit score is most likely low if you’re young or if you have not borrowed money before since your payment history contributes the highest percentage to your overall rating (35%). To improve your rating, you should take a loan and repay it on time, as lenders need to see how you handle borrowed money and how responsible you are with repaying it.
How Much Money You Need
Before applying for a loan, work out precisely how much money you need. Often, banks may have a minimum amount that you have to borrow, and so, if you need less than the minimum amount, it might be a better option to try to save up the funds or look for an alternate way to pay your bill. Borrowing more than you need may be a waste since you have to pay interest on the total amount.
On the flip side, borrowing a small amount may mean you’d have to take out another loan. Applying for multiple loans, especially within a short period, may negatively impact your credit rating.
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What Are You Eligible For
With all the different personal loan options available, it’s wise to spend some time familiarizing yourself with the different types to apply for and find the ones that suit you.
If you have good credit, you can probably get a personal loan with good terms from a bank. Personal loans from banks are considered short-term, and you typically have between two to seven years to repay them, depending on your contract. Bank applications may take up to a week to process, so keep this in mind if you need cash fast.
If you can afford to wait a few days and want to apply for a personal loan from a bank, you have two main options: secured loans or unsecured loans.
- Secured loans generally have lower interest rates, but you would need to provide collateral to reduce the risk the bank takes when loaning you money.
- Unsecured loans don’t require collateral but may have a higher interest rate.
Bad Credit Loans
Folks with poor credit are not entirely out of options. Many lenders offer loans specifically tailored for people with low credit ratings. There is a wide range of bad credit loans, and each has its own terms and limits. A popular option is cash advances. You can apply for cash advances at the lender’s premises or online.
One type of cash advance is an online payday loan. Payday loans are pretty easy to secure.
You must be an adult with a bank account, mobile phone number, and address. You must also prove that you have an income and a valid identity document.
You can submit all your details online and, if approved, receive the funds within twenty-four hours. The amount you’re permitted to borrow is based on your income since you have to repay the loan with your next paycheck or within two to four weeks.
Apart from the borrowed amount, you will have to pay interest, which is typically high.
It’s a good idea to compare, for example, CreditNinja online cash advance options with that of other lenders. Even if you need the money quickly, spend time comparing the terms and costs of each loan so that you can make an informed decision about which loan is best for you.
If you require a quick loan for an emergency, there are a few personal loans you can take. Before applying for a loan, determine your credit score and calculate how much you need.
While bank loans typically carry lower interest rates, they may take longer to process and may only be offered to folks with good credit. Bad credit loans are easier to secure even with a low credit rating, but they may be high in interest with a shorter repayment term.
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