Emergencies are sweeping across Canada. Between April 2021 and March 2022, almost 14 million Canadians visited the emergency room. Many of these Canadians incurred unexpected expenses that threatened them with bankruptcy and homelessness.
When you’re facing an emergency, an emergency loan can be your lifeline. But you should never take out a loan unless you answer a few questions about it.
What is an emergency loan, and what types of loans can you get? How can you use your loan effectively? How can you avoid falling victim to emergencies in the future?
Get the facts and you can turn emergency loan tips into effective financial solutions. Here is your comprehensive emergency loan guide.
The Basics of an Emergency Loan
An emergency loan is a loan you take out during an urgent situation. You may need money to cover the cost of rent after you lose your job or get demoted. You may need to buy a car after your car is stolen or destroyed, or you may need to cover unexpected medical expenses.
Any loan can be used during an emergency. But some banks and lenders advertise certain loans as being “emergency loans.”
These loans are generally offered to consumers after a brief credit check and an interview with the lenders. You may be able to get a same-day loan.
You should only take money out if you are facing a true emergency. Not being able to pay rent is an emergency, but not being able to buy Christmas gifts is not. Your situation must be so urgent that you do not have time to save money.
Emergency Loan Options
You have many options to get a loan. Take a look at your choices and get emergency loan advice from your financial advisor before you get your money.
Personal loans let you access fixed amounts of cash without collateral. You can receive the money in a bulk payment, then you will pay your lender back in fixed installments. Most lenders ask for monthly payments, but you may qualify for yearly or weekly payments.
You can use your loan to cover any expenses you have. If you have extra money left over after resolving your emergency, you can spend the money or return it.
Because you do not offer collateral to your creditor, you may need a high credit score to qualify for a personal loan. You also may need to pay them money over several years. Interest rates and other terms vary depending on who you talk to, so consider looking at a few options for personal loans.
Credit Card Cash Advances
A cash advance lets you borrow money against your credit limit. If you have a good credit score and a long relationship with your credit card company, a cash advance can be a good option.
However, cash advances tend to have very high interest rates. Credit card companies do not have grace periods, so you will immediately start acquiring interest on your loan. You also may need to pay fees for your advance, though the amount depends on your credit card company.
As with personal loans, you can use your money for any purpose. Some credit card companies let you withdraw cash from an ATM, which can make your loan more anonymous.
Title loans let you borrow money against your vehicle. They are good if you don’t have a high credit score. The more valuable your vehicle is, the more money you can get for your loan.
If you fail to pay your loan back, you will lose your vehicle. You should own your car outright and not have any outstanding debt on it.
You can get title loans on your house or another piece of property. The property you borrow money against must be something you can afford to lose. You should start paying off the loan as soon as the emergency happens, and you should keep paperwork related to the loan so you know how to pay it back.
Payday loans are loans offered with the expectation that you will pay your creditor back with your next paycheck. Many payday loans are same-day loans, so you can get money right away. Some creditors do not check your credit score or financial details, making it easy for you to get a loan.
But the overwhelming majority of loans come with interest rates as high as 400%. You may also pay fees, even if you can pay off part of your loan within a few days of taking it out. In order to use a payday loan effectively, you need to have a regular income and know how to pay the money back.
Finding the Right Loan
There are a few other factors you should consider besides the type of loan you are taking out. The most obvious factor is interest rates. You should expect to pay interest on your loan, especially if you need time to pay it back.
But shop around and find a loan with the lowest interest rates possible. See if there are fees for paying your loan back early or skipping a weekly payment.
Determine exactly how much money you need and apply for a loan with that exact amount. If your expenses may increase over the course of a few days, you can take out a little extra money, but taking out a lot more than you need can lead to fees.
You should find a loan with a very quick funding time. The money should be in your account in less than a week. If it is faster to transfer money through PayPal, Venmo, or another service, you should find a loan with that service.
At the same time, you should have enough time to pay your loan off without acquiring too much interest. You need to focus on covering for the emergency, then you can turn your attention to paying the loan off.
Using Your Loan Effectively
You should calculate how much money you need using receipts, bank statements, and estimates from experts. Think about any additional expenses that may crop up. If you’re buying a new car, you need to cover the cost of the car as well as insurance, gas, and initial repairs.
You should also check your credit score before you start applying for loans. If you have a low score, be ready to explain why you have a low score and how you can pay the loan back.
If you’re covering the cost of medical appointments, you should communicate with your insurer or doctor. You may need to file paperwork or hand over your financial information in order to pay for services.
Once you get your money, you should start spending it. You may incur additional expenses if you wait longer, and you can start the process of paying your loan back sooner.
Do not use your loan for discretionary expenses. Put your money toward paying for the things you need for your health, safety, and work.
Do not forget about your ongoing or regular expenses. You need to pay for your food, utilities, and housing. Keep your job and continue to make money while you are resolving your emergency.
Paying Off Your Loan
Do not wait to pay off your loan. Follow instructions from your creditor to the letter so you do not incur penalties or fees.
To make sure you have enough money to pay off your loan, you should find an additional income source. You can find a side job, or you can sell some of your belongings for a profit. If you have extra space in your house, you can rent it out to people.
Try to pay off your loan from your personal holdings, not your credit card. Paying in cash will eliminate the money you owe to people entirely while paying with your credit card means you will owe your credit card company money.
If you are paying off multiple loans at once, you should prioritize the loans with the highest interest fees. If your loans have similar fees, you can target your smallest loans so you get them out of the way.
You are not done once you’ve paid off your loan. You should think of a few ways to protect your finances and avoid a similar situation in the future.
Build an Emergency Fund
An emergency fund is a cash reserve that you can use for another emergency. At a minimum, you should have three months of your regular expenses stored in the fund, though the more money you have, the better.
Calculate how much your regular expenses are and set three months of your expenses as your savings goal. Start a savings account with a bank where your assets can grow over time.
Talk to your boss and ask them to transfer small amounts of your paychecks into your savings account every week. You can also talk to your bank and have them move money from your checking account into your savings account.
If you do not have a side job or monetized hobby yet, you should start one. Put all the money you earn into your emergency fund.
Check the fund every month to see how you are progressing. Once you’ve reached your goal for your emergency fund, you can transition to another goal. But feel free to keep adding small amounts of money into your account so you can cover all important expenses.
Budget Your Expenses
The less money you spend, the more money you save. Break down each of your regular expenses into categories like food and housing. Write a budget that itemizes everything and lets you keep track of what you’re spending.
Separate your unnecessary expenses from your necessary ones. Eliminate the money you spend on things you don’t need like entertainment and take-out food.
Try to find opportunities to spend less money on your essential expenses. If you spend a lot of money on groceries, consider going to a low-cost grocery store. You can also visit a discount retailer like Walmart to buy your clothes, dishes, and other important items.
You may have one-time expenses like buying a new laptop for work. Go to discount retailers or shop online for low rates. Make sure you have enough money to pay for these one-time expenses in your checking account and don’t tap into your emergency fund unless you need to.
You can follow a few tips to help you budget every month. Reduce your subscriptions and unnecessary fees, including ATM fees. Review your budget at the end of the month and adjust it over time.
Take Advantage of Windfalls
You may get cash as a present or a bonus from work. You can do a few different things with your money.
If you haven’t reached your emergency fund goal yet, you should use the money to get there. If you’re already at that goal but haven’t reached another goal, you can start a savings account for the second goal and put the windfall into it.
You may expect to pay money for a new laptop or car in the near future. Consider buying the new item now with your money so you’re not rushing later on. You can pay for things you may not be able to pay for later, like insurance or a warranty.
If you have enough money, you may be able to invest your windfall. Buy stocks, place your money in a business, or purchase real estate. Try to find a venture that will grow your money steadily over time, giving you a second income stream.
So What Is an Emergency Loan?
“What is an emergency loan?” is a more complicated question than it seems. A loan can help you cover urgent expenses you cannot pay for otherwise. But you can take out many types of loans, including payday loans.
You should use your money as soon as possible so you can stay safe. After the emergency has passed, you need to protect yourself by building an emergency fund. Keep your expenses low so you always have cash on hand.
Move fast when you need money now. Loanz provides emergency loans for needy Canadians. Start your emergency loan application today.