An emergency loan can provide much-needed cash during a difficult financial situation. During the current coronavirus/COVID-19 crisis, you might be feeling the problem more acutely than ever due to the loss of a job or having unexpected costs. But if you have no credit score, you may be wondering if you can qualify for such a loan.
The bottom line is yes, you can get an emergency loan without a credit score, but your options may be limited. With less-than-ideal credit scores, you can generally expect to pay relatively high interest rates, so it’s important to shop around to try to limit your costs.
To help you start your search, here are some emergency loan options for bad credit.
Unsecured personal loan
Unsecured personal loans are loans that don’t require you to put up property as collateral to the lender. Unlike payday loans and title loans, these personal loans are installment loans, meaning you repay the amount borrowed, plus interest, over a set period of time.
Unsecured personal loans often have lower interest rates than a typical payday loan and feature longer loan terms. But they also may be more difficult to qualify for because there’s no collateral the lender can repossess if you don’t make your payments.
If you qualify for a favorable rate, an unsecured loan could be a good option for you.
Credit card cash advance
A credit card cash advance is like taking a short-term loan from your credit card. When you request a cash advance, you’re asking to use the available balance on your credit card to withdraw money.
But a cash advance may be charged at a higher interest rate than your purchase APR and have transaction fees, likely making it more expensive than the equivalent purchase with your credit card. Cash advances also might start accruing interest immediately, so you’ll probably want to begin making payments shortly after you borrow the money.
Do the math on your purchase to decide if this option makes financial sense for you.
A payday loan is typically a short-term, high-cost loan that you’ll need to repay by your next payday. Limits on how much you can borrow vary by state, but payday loans are generally $500 or less.
Payday lenders often charge fees that makes these loans an extremely expensive way to borrow money. While some states regulate the fees that payday lenders can charge, these loans are still very expensive, often with fees that equate to APRs of 400% or more, according to the Consumer Financial Protection Bureau.
Payday loans come with a risk of trapping you in debt. If you’re unable to pay the loan back when it comes due, you may need to “re-borrow” by rolling it over to a new loan — but that will usually mean paying additional fees.
You should consider a payday loan only as a last resort.
Payday alternative loan
If you’re a member of certain federal credit unions, you may be able to apply for a payday alternative loan, or PAL. These small-dollar loans (amounts between $200 and $1,000) have a one-time processing fee that won’t exceed $20 and interest rates that can’t be more than 28%.
These short-term loans are often more favorable than payday loans for people who qualify. Unlike payday loans, the loan term on PALs typically ranges from one to six months. Plus, there’s a cap on borrowing: You can’t take out more than three payday alternative loans within six months.
If you’re a member of a federal credit union that offers them, a PAL is a good emergency loan option to consider.
If you own a car, you may be able to borrow against the equity in your vehicle with a title loan. These loans let you borrow a small amount of money that usually must be repaid within 30 days.
In exchange, you give the lender the title to your car as collateral for the loan. These loans don’t necessarily require a credit check. Once you repay the loan and the monthly fee that is charged — which is often 25% of the total loan, or the equivalent of a 300% APR — you’ll get your car title back. But if you can’t afford to repay the loan, the lender may repossess your car.
Title loans, like payday loans, can trap you in a cycle of debt. If you’re unable to pay the loan when it’s due, you may be able to roll it over into a new loan by paying additional loan fees. A 2016 study from the Consumer Finance Protection Bureau found that 1 out of every 5 people who have to roll over their title loans wind up with a car repossessed.
A title loan should only be considered if you’ve run out of other options.
Alternatives to emergency loans for bad credit
There may be other options available to pay for your emergency needs. Before you turn to a potentially high-cost solution, consider these other options.
Explore charitable financial assistance grants
Depending on your situation, you may qualify for an emergency assistance grant or loan. Some states and cities offer hardship grants to residents. For example, residents of Dane County, Wisconsin, can apply for emergency assistance grants if their family is facing eviction or foreclosure. Check with your state or local area to see what hardship grants may be available.
Ask your employer for a loan or advance
If you’re employed, your employer may be able to help you to bridge a short-term financial difficulty. Before you pursue an emergency loan, check with your employer to see if it can offer a loan or an advance on your next paycheck.
And if you’re a full-time or part-time federal employee, you may be eligible to receive a no-interest hardship loan of up to $1,500 through the Federal Employee Education and Assistance fund.
Use a credit card in your wallet
While credit cards can come with high interest rates, those rates are still usually less costly than other kinds of financing like payday and title loans. You also may be able to apply for a new credit card with a low or no-interest introductory APR offer.
Using a credit card might provide the short-term relief that you need. But if you do use one, make sure you have a plan to pay off your balance quickly, so you don’t accumulate too much interest.
Once your need for an emergency loan has passed, it’s a good idea to start planning for the next time an emergency pops up. You can start by creating a budget and putting money away in an emergency fund.
You’ll also want to think about ways to improve your credit, so you may have more options available to you in the future if you need to finance expenses.
To start, focus on making on-time payments on your current accounts and lowering any existing account balances since those are among the key factors in your credit scores.