Best Options for Funding Financial Emergencies

Financing emergencies happen to all of us at some point, and sometimes you may feel that no amount of planning could have prepared you for the financial burden.

If your home needs emergency repairs, a beloved pet becomes ill, your car breaks down, or a family member requires a hospital visit, emergency financing may be the only way to get through the crisis.

There are a few financing options available for such situations, but you’ll need to determine which one addresses your needs best. You want an option that helps you deal with an emergency without creating a financial hole you’ll spend years digging yourself out of.

Here are some emergency financing options to consider:

1. Unsecured bank loans

These are simply traditional credit union or bank loans. In this case, no collateral is required but you’ll pay a higher interest rate based on the loan’s perceived additional risk. Only pursue an unsecured loan if you’re sure you can repay the money by the end of the term period.

2. Secured bank loans

Secured bank loans require some form of collateral, but represent a lower risk for the creditor. This means you can negotiate a longer loan term for smaller monthly payments and a lower interest rate. This is an ideal solution for financial emergencies if you have equity in your home or a vehicle.

• Again, only choose this type of loan out if you are certain you can pay it back. Defaulting on a secured loan means you lose ownership of your collateral.

3. Payday loans

Payday loans vary from state to state, so it pays to read the fine print and the terms and conditions. The amount you are eligible for is determined by your paystubs. Repayment periods range from the date of your next paycheck to several weeks later.

• Payday loans assume very high fees. If you choose this type of financing, be sure to pay the loan back immediately to save a significant amount of money in interest. This is not one of the more recommended options for financial emergencies.

4. Home equity line of credit

You can always tap into your home equity line of credit (if you have one) for emergency financing. Talk to your credit union or bank about options for lines of credit. In general, you’ll need a good credit score to be eligible for this type of credit.

• Interest rates for home equity lines of credit can be steep, so use this option carefully.

5. Credit cards

In a pinch, you may be able to get a cash advance from one of your credit cards. Cash advances come in handy, if you can afford them, and it’s an instant source of quick cash.

Again, careful consideration is required, since cash advances like this include high interest rates for repayment.

6. Direct deposit advance

Some banks offer direct deposit advances, which are similar to payday loans. Wells Fargo and US Bank are two that do.

If you currently receive direct deposit through your employer, your bank extends you a temporary loan until money re-appears in your bank account. You can contact your local bank to find out whether this option exists for you.

7. Savings

Having an emergency fund for a rainy day can be a life-saver when a financial emergency surfaces. If you have a healthy savings account with available cash, by all means use it.

Remember, refreshing a savings account after a financial emergency is still easier than trying to repay a loan with substantial interest rates and accessory fees.

The Bottom Line

In the end, no financing option is clearly better than others, since the situation is never the same for every financial emergency.

Consider your financing options carefully and choose one that best suits your family’s needs. These types of emergencies can be both frustrating and scary, but they don’t have to destroy you financially as well.

Choosing the right type of funding for your unique situation can have you back on your feet soon after your emergency is over.