If you’re searching for an emergency loan the chances are that you need money quickly. Perhaps your business is thin on cash, the creditors are calling, or it’s you yourself that are faced with unexpected bills or expenses.
Whatever your situation or how dire the emergency, it’s still wise to thoroughly research your options before signing anything. Not all loans are the same and there are several things you’ll need to know to make an informed decision.
Here are 6 things to check for an emergency loan before you commit:
1) Your Credit Report
Before you apply for any type of loan or credit you should always look at your credit report, whether it’s for yourself or your business. This will give you an overview of past and current credit accounts, the payments that have been made, and the overall credit score.
The higher the score the better and the more likely you will be able to get an emergency loan. If you have a particularly poor score it is unlikely that you will be able to get a large sum with the best interest rates, so don’t waste your time applying as such. In fact, applying and getting rejected can further harm your score.
Check your report closely for any errors that could be negatively affecting you.
2) The Interest Rate
One of the most important factors of borrowing is the interest rate. This is the amount charged on top of the principal (amount borrowed). It is usually displayed as an Annual Percentage Rate (APR), which is the amount you would pay in interest for a year.
E.g. a loan of $1,000 at an APR of 20%, is $200 in interest a year or $16.67 a month. You can use the APR to work out how much you’re paying each month, based on how much you’re borrowing and for how long.
Of course, most lenders will and by law, should make this clear to you anyway. The important part is deciding whether you can afford such payments.
3) Better Options
Even if you’re in an emergency and need cash quickly, you should still shop around for the best interest rate and other terms. This doesn’t mean going to bank after bank, or to loan websites one-by-one.
Many comparison sites exist that do all the hard work for you. Others like ElcLoans can connect you with one of many emergency loan lenders from a large network of lenders, which increases your odds of being approved.
4) If Soft Search is Available
Applying for a loan or any other type of credit leaves what is called a ‘search’ on your credit report. This means a credit check has been performed and acts as a note to other lenders that you are seeking to borrow. This along with all the other information on your report is used by future lenders when deciding whether you’re suitable.
It’s therefore not a good sign if you have many searches in a short space of time and have been rejected by lenders.
The good news is that some lenders offer a ‘soft search,’ which allows you to provide your personal details and get an accurate overview of which loans and/or the terms you qualify for, prior to going through with a formal application.
Comparison and middle-man sites might also do this before connecting you with a lender.
So, to save any damage to your credit score, it’s best to use a service that can perform a soft search before a full credit check.
5) A Payday or Installment Loan?
Before committing to a loan, you need to know whether it is a payday or installment loan and what the differences are.
Installment loans are regular personal or business loans that you repay over several months. This allows you to spread the cost of larger amounts, to lessen the burden.
Payday loans are usually issued for a maximum of 30 days and are expected to be repaid in full, in one lump sum. The idea is that it bridges the gap until you next get paid, but they are also helpful in all sorts of other financial emergencies.
You can usually borrow more at a lower interest rate with an installment loan, but payday loans are more practical for small and short-term financial woes, such as being unable to cover a small unexpected bill.
6) The Small Print
Although lenders are regulated at the federal and state level, they still have their own terms and policies. That means you should always check the agreement and its small-print before signing the contract.
If you’re seeking an emergency payday loan you might want to find out whether the lender grants extensions or renewals of the loan if you can’t meet the repayment date. In general, you will also want to know their procedure for late payments and what, if any, the charges are.
Can you make repayments manually or are they automatically debited from your bank account? Do they let you repay your loan early, and if so is there are a charge?
Ultimately, if you use common sense, read the small print, and hunt for the best terms, it should not be difficult to find a loan in an emergency without hurting your credit score.