Finance

A Guide to Emergency Loans for Poor Credit

January 9, 2023

Whether it’s a broken-down car, a trip to urgent care, or simply covering living expenses during an unexpected job loss, there are countless reasons why people may need emergency loans rather than credit loans.

We can’t always plan for unexpected financial needs, but if you’re saddled with poor credit, finding a lender that will work with you can be a struggle. However, there’s always room to make the best of a bad situation—it just means taking extra care to be wary of predatory loan terms and find the best interest rates on emergency loans that can cover your needs.

If you’re feeling stuck, the first step is knowing your options for getting an emergency cash loan without a high credit score.

Is It Possible to Get an Emergency Loan with Bad Credit?

In a word, yes. There are emergency cash loans designed specifically for borrowers with poor credit, like payday and title loans.

However, you may be able to qualify for even better solutions. Choosing from a wider range of loan types depends on:

Your assets, such as a home or vehicle
Whether or not you have a steady paycheck
Whether you can find someone willing to cosign a loan
Whether you’re a member of a credit union
Your willingness to comparison shop

Each type of loan and direct lender has its own set of terms and conditions, so your best bet is to shop around for terms and rates, and research carefully before you apply.

How to Get an Emergency Loan with Bad Credit

Your first course of action is to know where your credit score stands, and why it matters. Bad credit score is generally considered to be any score below 629.

According to 2022 online lender marketplace data, borrowers were offered the following personal loan interest rates relative to their credit rating:¹

Excellent credit 720 to 850 – Average interest rate 10.6%
Good credit 690 to 719 – Average interest rate 15.7%
Fair credit 630 to 689 – Average interest rate 19.4%
Bad credit 300 to 629 – Average interest rate 25.2%
Credit under 500 – Unlikely to have qualified

But credit rate isn’t everything. You should also gather your:

W-2s or pay stubs
Work history details or tax returns
Financial statements
Social Security number
Collateral documents such as current mortgage statement or car title

With this information on hand, you’re ready to start shopping for loans.

#1 Credit Union Loans

If you belong to a credit union, make it your first stop. While most don’t tend to specialize in bad credit loans, credit unions typically have a mission of serving their community members, which often means:

Looser lending standards than traditional banks
Greater willingness to work with individuals with poor credit
Lower interest rates than banks

Credit unions are a top contender when it comes to finding the best emergency loans for poor credit score holders. This is because federally chartered credit unions have an interest rate cap of 18% APR, while other lenders can charge as high as 36%.¹

If you have poor credit, you’ll likely be shopping for a loan offer among predatory lenders—or at least lenders who need to balance their higher risk by hiking up interest rates. For that reason, a credit union’s rate limits come as welcome news.

#2 Home Equity Loans

In addition to your credit history, one of the biggest factors in loan rates and availability is security. A secured loan relies on an asset that the borrower is putting up as collateral, which means it’ll always have a better interest rate range than an unsecured loan, which strictly relies on the borrower’s history and word to repay it.

Real estate equity is the king of loan security for lenders, so if you’re a homeowner with equity built up in your property, consider:

A home equity loan – A home equity loan, or second mortgage, borrows against the amount of equity you own free and clear in your property. Learn more about how to get a second mortgage with bad credit if this sounds like the right option for you.

HELOC – A home equity line of credit tends to have a slightly higher rate than a traditional home equity loan, but comes with the flexibility to draw as much or little as you need from a total credit amount. If this option sounds like the right choice for you, learn more about how to get a HELOC with bad credit.

Cash-out refinancing – A cash-out refi includes a total refinance of your current mortgage that also includes cash back—typically up to 80% of your current equity. Learn how to do a cash-out-refinance if this option sounds right for you.

You can borrow against your equity from your current mortgage provider or any bank, credit union, or online lender, so shop around for the best rates and terms for your circumstances.

#3 Co-Signed Loans

One option for borrowers with poor credit is to get a co-signer, usually a family member or close friend.

The lender may extend the loan to a borrower with poor credit based on the understanding that, if they fail to repay the debt, the co-signer (who typically has the better credit and/or collateral) will be legally obligated to cover it within the repayment term.

#4 Retirement Fund Loans

You may be able to borrow against your retirement fund for certain situations, but it can come with steep fees and a significant impact on your savings momentum.

The most common type is the 401k hardship withdrawal. Not all 401k plans allow for loans or withdrawals, but if they do, they’re often strictly regulated. Usually, they require you to:

Pay income tax on the withdrawal even if you repay it
Pay a 10% penalty if you’re under 59 ½
Apply as a last resort and for a specific reason (and use the loan for that purpose)
Wait six months before you can defer money from your paycheck to your 401k again

Acceptable purposes may be medical or death expenses, college education, or protection and repair to a primary home. Just be sure to check with your retirement fund manager for loan or withdrawal availability and terms.

#5 Title Loans

A title loan is a short-term loan that you secure with specific assets, usually your car, as collateral. If you can’t repay the loan, the lender may repossess the vehicle. With a title loan:

You have to provide proof of income and residency
You’ll need a clear title to your vehicle
The amount you can borrow is based on the value of your car
The loan is usually due in full within 30 days

The interest rate for a title loan is typically higher than that of a traditional loan, as the lender is taking on more risk. This will vary depending on the amount of the loan and the length of the repayment period, and will usually be higher if the loan is for longer than 30 days.

You can get a title loan from several sources, including banks, credit unions, and online lenders.

#6 Payday Loans

Payday loans are short-term, high-interest loans designed to be used as a last resort. They’re typically only used by people who have bad credit and no other options for borrowing money.

The loans are usually due on the borrower’s next payday (hence the name). If the borrower is unable to repay the loan, they may be able to extend it for another pay period. However, this will usually result in even higher interest charges and fees.

These loans can be helpful if you need a small amount of money to cover unexpected expenses or to tide you over until your next paycheck—but if you’re considering one, proceed with caution. Payday loans can be a trap that’s difficult to escape if you keep borrowing to cover interest and fees that are higher than you can stay on top of.

There are a few different places you can get a payday loan:

A payday loan store
Online lenders
Some banks and credit unions

Interest rates for a payday loan vary depending on the lender. Some lenders may charge a flat fee, while others may charge a percentage of the loan amount. Shop around and think carefully if you’re considering a payday loan.

#7 Micro-Lending

Peer-to-peer micro-lending platforms are a newer option with a lot of variables—including whether the practice is legal in your state.

If so, check out Upstart, Prosper, or Lending Club. They tend to have lower minimum credit score requirements than traditional lenders (the three above require a credit score of at least 600).²

Key Takeaways

Like any other type of crisis, financial emergencies start with the same steps: stay calm, evaluate your circumstances, and choose a course of action that can sustainably support your needs and goals.

Ultimately, having poor credit doesn’t automatically bar you from all personal loans. When you can tap into the resources at your disposal—whether your credit union, trusted contacts, or other—you can find supportive solutions that can help you pull through.

Sources: