Emergency Personal Loans: The Pros, The Cons, and The Truth

There are plenty of reasons why you might want to take out a personal loan. Whether it’s for repairing a broken air conditioner in the dead of summer or paying for a costly trip to the emergency room, it’s always good to have a fund set aside for emergencies. However, according to a report by the Federal Reserve Board, roughly 44% of Americans don’t have the cash to take care of an unexpected $400 emergency.

While you can't always control when a significant expense pops up, you can make financially sound borrowing decisions. A personal loan can put money in your hands in just a few days and can be a responsible way to cover the price tag of unforeseen circumstances that may call for fast cash.

Before rolling up your sleeves and churning out those emergency personal loan applications, it's important first to understand what the pros and cons are so that you can make the most informed decision.

Pros of An Emergency Personal Loan

There’s a reason why personal loans are so popular among consumers, whether they’re used for an emergency or not. Some of the most important benefits associated with a personal loan are the following:


Personal loans are very flexible, making them appropriate for a wide range of circumstances a borrower may end up in. The cash is deposited directly into your account and can be used for any reason, such as quickly replacing a leaky roof during flood season. They can also be utilized to simplify your life by consolidating debt to handle emergencies with ease.

An emergency personal loan is also flexible when it comes to repayment terms. Loan periods are stated in months (e.g., 12, 24, 36, 48, and so on), with more extended repayment periods typically coming with a lower monthly payment. Shorter loan periods mean paying more per month, but can also mean spending less in interest in the long-run. This gives borrowers plenty of wiggle-room, depending on their financial situation.

No Need For Collateral

Emergency personal loans are secured or unsecured. Having a secured loan indicates that there is collateral backing the loan up in case the borrower defaults.

Most personal loans are unsecured, so you don’t have to worry about forfeiting an asset — such as your home — if you happen to default. If you’re confident, however, that you can pay back your loan on time, you might want to consider applying for a secured loan to get the best interest rates.

Fast Application Process

Most reputable lenders will offer an online personal loan application, making the process both comfortable and convenient. Additionally, personal loans don't require as much [G25] [G26] documentation as other types of loans.

While personal loans are typically processed quickly, it’s always a good idea to contact the lender to find out how long it can take, especially when the funds are needed for an emergency.

Cons of An Emergency Personal Loan

While applying for a personal loan comes with a wealth of advantages, they also come with a fair share of drawbacks, which consumers should also take into consideration.[G29] [G30] [G31]

Slightly Higher Interest Rates

Since unsecured loans are primarily based on an applicant’s creditworthiness and ability to repay, the interest rates are often much higher than a secured loan that is backed by an asset. This is mainly due to the higher risk factor involved for lenders.

While it may be difficult to find time to shop around for the best interest rates when applying for an emergency personal loan, it'll be easier if you have a good credit score, as this is one of the primary determining factors of what your interest rate will be by lenders.

Stricter Requirements

Since unsecured loans are riskier for lenders, you can expect them to be much more picky about who they lend money to. When approving or rejecting someone for a personal loan, there are many factors a lender will consider, one of the most significant being credit score. Some other important factors include your credit history, income, and how much debt you currently have.

All of these components give lenders a more explicit indication as to an applicant's ability to pay the loan back.

Smaller Loan Amount

If an applicant is found to be a higher risk — with job instability or a low credit score — banks and other lending institutions may limit how much they are willing to lend. Keep in mind, lenders will go through pretty extensive checks on everything from credit score to employment history to determine repayment ability.

Fortunately, there are plenty of ways to improve your credit score and financial standing to ensure you get the loan amount you’re after. This includes paying your bills on time every month, keeping an eye on your credit reports to ensure accuracy, and diversifying your credit mix, among other essential do’s and don’ts.

Bottom Line

Life happens, and we've all been in a situation that requires some fast funding. While it's important to identify what you have to gain and what you have to lose by taking out an emergency personal loan, it’s most likely going to be your best bet in a crunch.

The key takeaway is to understand the terms involved and the conditions of the agreement, as this can significantly vary from lender to lender. Always read the fine print and don't hesitate to speak to a representative if you need further clarification. Any reputable lender will be happy to help with the application process and explain everything involved before you put your signature on that dotted line so you can make a responsible borrowing decision.


* Please consult with your attorney, financial consultant/planner, accountant, and/or tax advisor for advice concerning your particular circumstances.  The information contained herein is for general informational and educational purposes only and should not be construed as professional, tax, financial or legal advice or a legal opinion on specific facts or circumstances. The information or ideas contained herein should not be construed by any consumer and/or prospective client as an offer to sell or the solicitation of an offer to buy any particular product or service.

The information contained herein was prepared for general information and educational purposes only and should not be construed as professional, tax, financial or legal advice or a legal opinion on specific facts or circumstances. Eloan a Division of Banco Popular de Puerto Rico, its subsidiaries and/or affiliates are not engaged in rendering legal, accounting or tax advice. Please consult with your attorney, financial consultant/planner, accountant, and/or tax advisor for advice concerning your particular circumstances.