Should You Use a Personal Loan in an Emergency?

Around half of Americans can cover a $2,000 emergency expense with savings, according to a survey by the National Foundation for Credit Counseling. Still, many Americans turn to credit cards, family and friends, and pawnshops to get the money they need for unexpected costs.

An emergency personal loan can be a cheaper alternative to a credit card, and it doesn’t require you to sell off your possessions or jeopardize your relationships over borrowed money. Depending on your credit score and needs, here’s how a personal loan can help in an emergency.

In this guide:

• How to use an emergency personal loan
• Pros and cons of using a personal loan in an emergency
• Best personal loans for an emergency
• Should you get a personal loan for an emergency?
• How to apply for an emergency personal loan
• Alternatives to an emergency personal loan
• FAQ

How to use an emergency personal loan

A personal loan is a versatile loan you can use for almost anything you want, including emergency expenses such as vehicle and appliance repairs, medical bills, veterinary bills, or even job loss. Experts recommend establishing an emergency fund of three to six months’ worth of living expenses by creating a budget and savings plan, but this isn’t feasible for everyone.

Personal emergency loans offer quick funding—in some cases, you can get the money the day you apply—and can provide long repayment terms. Once you have the funds in your checking account, you can use them as you please. If you have more expenses related to your emergency, you can even use a personal loan for an emergency fund to cover those costs when you incur them.

Many personal loans offer repayment terms ranging from one to seven years with a fixed, predictable monthly payment. Depending on the lender, loan amounts can vary from $500 to $100,000, offering flexibility based on your financial needs.

If you have good credit, you may qualify for a low interest rate on your loan. In February 2023, the average personal loan interest rate was almost half the average credit card interest rate, according to the Federal Reserve—11.48% on a two-year personal loan compared to 20.92% on a credit card that assesses interest.

Pros and cons of using a personal loan in an emergency

As with any financial product or service, we recommend considering the advantages and disadvantages before using a personal loan for emergency expenses.

Pros

• Quick funds:

  Many online lenders offer funding within one to two days; in some cases, you could even get same-day financing.

• Flexibility:

  Unlike a credit card, which limits you to point-of-sale and online transactions, your lender deposits a personal loan in your checking account, and you can use it as you want.

• Accessibility:

  You’ll get better terms with good or excellent credit, but personal loans are available to borrowers across the credit spectrum, and you may not need collateral or a security deposit to get approved.

Cons

• Little payment flexibility:

  If you lose your job or your income is about to fall, the minimum payment on a credit card may be more appealing than a fixed monthly payment on a personal loan.

• Interest rates can be high:

  If your credit is fair or poor, you may have a high interest rate and, therefore, a high monthly payment.

• Fees:

  Some lenders charge upfront origination fees, which can be as much as 12% of the loan amount. Most lenders will deduct this fee from your loan disbursement, so you may need to borrow more to get the funds you need.

Best personal loans for an emergency

Best for good credit: SoFi

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Editorial rating: 5 out of 5

• High maximum loan amount
• No fees required

SoFi offers personal loans ranging from $5,000 to $100,000, which may be too high for more minor emergencies, but it provides flexibility for larger ones. SoFi doesn’t disclose a minimum credit requirement, but it’s best for borrowers with good or excellent credit. If you’re unsure about your eligibility, you can prequalify with a soft credit check.

• Credit score category: Good to excellent credit
• Soft credit pull to check rates? Yes
• Deposit time: As soon as the same day
• Origination fee: 0% to 6%
• Late fee: None
• Fixed interest rates (APR): 8.99% – 29.99% with all discounts applied
• Repayment terms: 2 – 7 years 

Best for excellent credit: LightStream

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Editorial rating: 4.8 out of 5

• High maximum loan amount
• Rate beat program
• No fees whatsoever

Like SoFi, LightStream offers loans ranging from $5,000 to $100,000, and you don’t need to worry about fees throughout the loan process. The lender also provides same-day funding, depending on when you submit your application.

One feature that sets LightStream apart from others is its Rate Beat program. If you can find a better offer on another unsecured loan with the same terms, LightStream will beat that rate by 0.10%. 

LightStream doesn’t disclose a minimum credit score, but it’s best for borrowers with good or excellent credit. LightStream doesn’t offer the option to prequalify, so you must submit an official application to see what terms you qualify for.

• Credit score category: Excellent
• Soft credit pull to check rates? No
• Deposit time: As soon as the same day
• Origination fee: None
• Late fee: None
• Interest rates (APR): 7.99% – 23.25%
• Repayment terms: 2 – 7 years

Best for fair credit: Upgrade

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Editorial rating: 4.9 out of 5

• Low minimum loan amount
• Offers rate discounts
• Allows joint loans

Upgrade could be suitable if you have a less expensive financial emergency. The lender offers loans ranging from $1,000 to $50,000. The minimum credit score is 560—and you can prequalify with a soft credit check to gauge your approval odds. 

Upgrade doesn’t offer same-day funding, but next-day financing is solid. That said, its origination fee can be pricey, especially if your credit is on the lower end of what the lender accepts. 

Upgrade’s interest rates can be high, but you could qualify for a discount if you set up automatic payments and have an Upgrade Rewards Checking account. If you can’t get approved independently, you can apply with a co-applicant.

• Credit score category: Fair to excellent
• Soft credit pull to check rates? Yes
• Deposit time: One business day
• Origination fee: 1.85% to 9.99%
• Late fee: Up to $10
• Interest rates (APR): 9.99% – 35.99%
• Repayment terms: 2 – 7 years

Best for thin credit: Upstart

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Editorial rating: 4.8 out of 5

• Low minimum loan amount
• Looks beyond your credit history
• Limited repayment options

Upstart can be a terrific place to start if you have little to no credit. Its minimum credit score is 300, the lowest possible. Like Upgrade, Upstart offers loans ranging from $1,000 to $50,000, making it worth considering for small and large emergencies. 

However, watch out for several limitations. For starters, only two repayment terms are available. Upstart also charges one of the highest origination fees on the market, which can be as much as 12% of your loan amount.

If you want to view potential loan terms, Upstart offers prequalification without a hard credit check. If you apply and get approved, funding can occur as soon as the next business day.

• Credit score category: Limited to excellent
• Soft credit pull to check rates? Yes
• Deposit time: One business day
• Origination fee: 0% – 12%
• Late fee: 5% of the past-due amount or $15, whichever is greater
• Interest rates (APR): 8.99% – 35.99%
• Repayment terms: 3 or 5 years

Should you get a personal loan for an emergency?

Consider an emergency personal loan if…	Think twice about an emergency personal loan if…
Your savings aren’t enough to cover your emergency expenses.	You have enough savings to cover your emergency costs.
You have good or excellent credit.	Your credit is fair or poor.
You can afford the monthly payment.	The monthly payment is unaffordable.
You can’t find a less expensive way to cover your expenses.	You can find a less expensive way to cover the expenses.

Note that having fair or poor credit doesn’t mean you should avoid personal loans—other financing options will likely cost you more. But if combined with other factors on that side of the table, getting a personal loan with fair or poor credit could do more harm than good.

How to apply for an emergency personal loan

Applying for a personal loan is a straightforward process, but taking the proper steps to ensure you get the best deal is essential. Here are four guidelines to help you along the way:

1. Determine your needs: Consider whether a personal loan is right for you. You may research other options to see whether you can find a less expensive way to cover your costs. If you decide a personal loan is the right move, calculate how much you need to borrow to meet your needs. Depending on your situation, this can take a few minutes to several hours.
2. Shop around and compare offers: Many personal loan companies offer prequalification with a soft credit check, so take a few minutes with at least three lenders to get quotes for rates, repayment terms, monthly payments, and fees. If you think a lender might be a suitable fit, but it doesn’t offer prequalification, you must submit a complete application, which can take longer.
3. Apply: Once you’ve narrowed your list of options to one lender, apply with the lender through its website. You’ll need to provide basic information and documentation, such as a copy of your government-issued photo ID and a recent pay stub. Depending on the lender and required documentation, this can take a few minutes to half an hour.
4. Review the offer and sign the agreement: After you submit your application, the lender will review your credit history and other information to determine whether you qualify and what your terms may be. Depending on the lender, this can take a few seconds to a week. Once you get approval, review the loan terms and conditions and sign it if everything looks good. (You can decline the loan before accepting if you’re uncomfortable with the terms.)

You’ll get the loan funds within the period your lender sets. Once you get the funds, log in to your online account and set up automatic payments.

Alternatives to an emergency personal loan

Depending on your situation, you may have other ways to cover your emergency expenses. Here are five to consider:

• Emergency fund: If you have money set aside, consider using your emergency fund before you borrow money to cover your costs. After all, this is the purpose of an emergency fund. 
• 0% APR credit card: If you have good or excellent credit and have time before paying your expenses, consider a credit card with an introductory 0% APR promotion. These cards allow you to make purchases and pay them off interest-free over six to 21 months. While some card issuers may provide a card number upon approval, others may require you to wait a week or two to get your card in the mail.
• Ask a friend or family member: If you have a loved one who can and will help you, consider asking them for assistance. Borrowing money from friends or family could jeopardize your relationship, especially if you don’t pay back the money promptly. To avoid potential issues, draft an official agreement and pay the debt on time or early.
• Paycheck advance: Check with your payroll manager to see whether you can get an advance on your next paycheck. Paycheck advance apps can help you without charging sky-high fees and interest. But remember: An advance on your paycheck could delay your troubles if you can’t get back on track.
• Emergency assistance: Nonprofit and community organizations in your area might be able to help you with food, rent, utilities, and other necessities while you deal with your financial emergency. Call 211 to find out about programs.

Note: If you have bad credit, we don’t recommend short-term loans such as payday loans, auto title loans, and pawnshop loans. These financing options can be easy to get, but they often charge exorbitant interest rates and fees and require quick repayment. 

If you can’t pay on time, you can get caught in a vicious cycle of borrowing, adding more interest and fees to the amount you owe.

FAQ

What are the best emergency loans?

No emergency loan is the best fit for everyone. Evaluate your situation and needs to determine which lender can best help you get the financing you need.

Consider checking your credit score using a free service such as Experian to gauge your overall credit health, and compare prequalification quotes from several lenders to get an idea of which loan is the best fit.

What are the worst emergency loans?

Payday loans, auto title loans, and pawnshop loans are the worst options when you’re in a pinch because their significant finance charges and short repayment terms can make it challenging to figure out your financial situation before it’s time to repay what you owe. 

In contrast, the best personal emergency loans offer repayment terms of two or more years, allowing you to spread out repayment and get back on your feet.

Read More

Personal Loan vs. Cash Advance

What are the quickest emergency personal loans?

Here’s a quick summary of what to expect from our top choices for the best emergency personal loans:

Lender	Funding time
SoFi	As soon as the same day
LightStream	As soon as the same day
Upgrade	1 business day
Upstart	1 business day

Should you use a personal loan as an emergency fund?

Building an emergency fund takes significant time and effort, so it’s natural to wonder whether taking out a personal loan and depositing the funds in your savings account for potential emergency expenses is easier. 

This approach could be worth considering, but only if the following are true of your situation:

• You have excellent credit and can qualify for a low interest rate but don’t have the excess cash flow to save toward an emergency fund
• You can afford the monthly payments.
• You’ve depleted your emergency savings and expect more expenses soon.

If you can afford to save toward your emergency fund each month and have a decent buffer already, taking out a personal loan for potential emergencies might not make sense. It also won’t make sense if you can’t qualify for a low interest rate.

Should you use a personal loan for a medical emergency?

A personal loan can be a decent way to pay for emergency medical expenses. Before you start shopping around for a loan, however, you may consider other options. For example, many medical providers offer interest-free payment plans that don’t require a credit application.

You might also have time between your medical emergency and when your bill is due, giving you time to apply for and get a credit card with a 0% introductory APR promotion. 

Research and compare these and other alternatives to determine the best way to cover your medical expenses.