Financial emergencies can hit anybody at any time. Even if you know how to save money effectively and have built up an emergency fund to assist you during a financial crisis, there will be times in your life where you need a lot of money quickly to maintain your quality of life.
There are many different types of financial emergencies that can drain your emergency fund and force you to look outward for additional money. With that said, some financial emergencies are more common than others.
Common Financial Emergencies:
- Medical bills
- Funeral expenses
- Car trouble
- Cost of living increases
- Household repairs
- Job loss
Various Ways to Cover an Unexpected Financial Emergency
When a financial emergency hits, like the ones listed above, it can create a heavy mark on your life. You will need quick financial relief to handle this unforeseen situation, and luckily, there may be several options you could take advantage of.
Using Your Existing Emergency Fund
If you have an emergency fund, you may be tempted to deplete it when you need money to resolve a current predicament. But this may not be the best option for your finances.
Emergency funds are set in place to cushion you from financial instability, but depending on your current situation, you may be better off looking for funds elsewhere. It’s recommended that you only use your emergency funds for those once-in-a-lifetime catastrophes.
But if you must, make sure you use no more than 50% of whatever funds you have managed to save so far. This way you still have an emergency fund for any other financial dilemmas in the future.
Acquiring Money from Friends or Family
There are many great perks to borrowing funds from family and friends, however, just as many pitfalls.
This funding method may not be an option for many, as the amount needed to cover the full cost of a financial emergency may be too great. But if you’re able to acquire the money you need from a family member or friend, then you could save on interest rates and pesky fees. Not to mention, the repayment terms could be incredibly flexible. But there could be many repercussions if the exchange is not handled with care.
If your financial situation doesn’t improve, then you could risk the relationship you have with the individual you borrowed money from. If the terms of the loan were not gone over in detail, the miscommunication could cause a rift in the relationship between you and the family member or friend.
Using a Quick Payday Loan
If you need a lot of monetary funds to cover the total cost of the financial crisis you are facing, then you may have thought about applying for a payday loan.
Payday loans are unsecure loans, meaning that no collateral is needed to acquire the loan. This is great news, as you do not have to risk a valuable asset like a sentimental piece of jewelry. But while payday loans offer quick financial relief to those facing an emergency with a deadline, they may not be the best option.
These quick relief loans come with many setbacks, such as:
- High interest rates
- Short repayment terms (2 weeks)
- Hidden fees
The name is reflective of the repayment terms, as repayment is typically expected by the borrowers upcoming payday. If you don’t have the full loan amount plus fees by then, you risk incurring even more fees and falling further into debt.
Applying for a Convenient Title Loan
Title loans are another borrowing option that many people turn to. Just as popular as payday loans, with significantly better terms.
Title loans, unlike payday loans, are secure loans. Unfortunately, this means that collateral will be required—in the form of a car. To obtain a title loan, the borrower uses the car as collateral by giving the title to the lender for the duration of the loan.
This downside may not be so grim though, as many lenders allow the borrower to keep driving their car while making payments. And since the loan is secure, the lender may offer better terms.
Title loans could offer borrowers the following benefits:
- Longer loan terms (up to a few years!)
- Flexible eligibility requirements
- Quick approval and funding
- Competitive interest rates
Title loans are a great funding option for those facing a financial emergency due to their ease and convenience. Credit is typically not the main qualifying factor with title loans, making them easier to acquire than most other types of loans.
Consider the many funding options available to you, including using your emergency fund, payday loans, and title loans. Consider how much you need and how long you would need to repay any money you borrow. Financial emergencies can pop up out of the blue, but you don’t have to be left adrift.