Having a savings account is good but sometimes emergency situations may come up where your savings account money may not be sufficient to overcome this challenge if you have the facility of emergency loans.
Emergency loans can provide you quick access to funds but this is not a suggested step. Any day having an emergency fund is good but if you do not have emergency funds then going for an emergency loan can provide you access to cash. Different lenders have different loan facilities. Some lenders charge high interest rates whereas others have long term payment facilities where the monthly EMI is low. Here are some different types of emergency loans.
- Salary Advances
- Pink Slip Loans
- Cash advance Loan
- Credit Card Advance
- Personal loans
Salary Advances
Salary Advances are provided by the employers to the employees. This facility provides funds from your future earnings. However, the salary amount will be put on hold if the payment is not cleared as per the instructions within the due date. There are also Third party pay cheque advance apps which provide cash facility based on your salary. The amount should be repaid with your next salary. These apps charge certain fees for their services in the form of subscription and maintenance fee.
Advantages of Salary Advances
- It is provided by Employers so it is interest free
- Quick access to funds
- Third party pay apps are available to provide loan facilities
Disadvantages of Salary Advances
- Only a small amount of money is provided and depends on your salary
- Employer and Employee relationship is the key to get this loan
- Loan will be deducted from your salary
Pink Slip Loans
This is also called a Title loan, pink slip is an ownership proof where the car owner gives his vehicle as collateral to get the loan amount. Vehicle remains as collateral and the loan amount is issued. These are short term loans which should be repaid in a month or so. The valuation of the asset is done and loan amount is provided to the applicant. Unemployed or retired generally or anyone in need of emergency funds opt for this type of loan.
Advantages of Pink Slip Loans
- Borrowing facility for weak credit score applicants
- Quick access to funds
- Your asset remains safe
Disadvantages of Pink Slip Loans
- High interest rates
- If loan is not paid your asset will be repossessed
- Short term repayment generally it is 15 to 30 days
Cash Advance Loan
Cash Advance Loans also known as payday loans are very high repayment risk loans. The main criteria is the individual should be a salaried employee. These are high interest loans and these provide a quick access to funds. The lending institutions or the banks will decide the loan amount and issue funds to the borrower. It is observed that borrowers fall into debt trap with cash advance loans.
Advantages of Cash Advance Loans
- Get funds available even with bad credit score
- Quick access to funds
- There is no security or collateral required to get this loan
Disadvantages of Cash Advance Loans
- You get trapped in Debt cycle
- Expensive mode of loan offer
- Takes access to bank account
Credit card Advance
If you are using a credit card responsibly then credit card is a wonderful source of funds availability option. Cash advance is provided on the credit cards; the amount depends on the card limit. It varies from lender to lender the cash advance provided will be listed on the statement of account. You can get quick access to cash through the ATM. There is no additional security required to get credit card advances. Interest rates are hefty and they start from the day you withdraw cash from your credit card.
Advantages of Credit Card advance
- It is a quick and efficient way to get access to funds.
- Access to money any time just Withdraw money from ATM
- No Collateral or credit check is done
Disadvantages of Credit Card Advance
- High interest rate
- Limited amount of money can be withdrawn
- Interest rates start from the day you withdraw money
Check More: Compare Credit Cards in UAE based on your needs
Personal Loans
Personal Loans is one of the most relied sources of emergency loans. The loan amount is lump sum and the repayment is long term 3 years or 5 years or as decided by the applicant. The personal loan amount will come quickly into account once approved. A good credit score is required to be able to qualify for a personal loan.
Advantages of Personal Loans
- Quick access to funds
- Long term repayment facility
- Interest rates are low
Disadvantages of Personal Loans
- Processing fees and other taxes are levied on the loan
- Interest rates are high if you have low credit scores
- Monthly repayments burden
Check More: Top Personal loans in UAE
For what expenses Emergency loan be used?
Emergency loan funds should be used for emergency expenses only otherwise you will fall into debt trap if mismanaged. If you do not have the cash to pay and you are left with no other option then an emergency loan is a source of funds.
- Medical Emergencies
- Making Home renovations so its ideal for living
- Making vehicle repairs
- Overcoming the challenges of Natural disasters
- Unexpected losses due to Theft or vandalism
Takeaway
Emergency Loans are a type of loan which you have to repay any given day. These provide quick access to funds within minutes or a couple of days. Always check the type of loan which you are preferring as they may cost you with a high rate of interest. Managing loans is a difficult task and you have to be meticulous so that you do not fall into the trap of debt.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
