What is an emergency loan and its types? How to get an emergency loan?

An emergency loan is essentially a personal loan and is the most convenient option to obtain a loan during a financial crisis. These loans are simple to get, with the funds often disbursed within a day or two. The best aspect is that these unsecured personal loans require no collateral deposit. Quick emergency loans are sometimes issued on the same day as the application.

Emergency loans can be used in any situation like medical bills and education fees.

What are the types of emergency loans?

1. Credit card cash advance
Credit card cash advance or credit card cash withdrawals enable cardholders to withdraw cash from an ATM. To withdraw cash using your credit card, simply go to your bank's local ATM and use your credit card, just as you would with a debit card. The available cash limit varies depending on your card type and credit limit.

The most significant advantage of a credit card cash advance is that it is instant. The disadvantage is that interest will begin to collect immediately on a credit advance since there is generally no grace period. In addition, you will most likely be charged a transaction fee ranging from 3 to 5 per cent of the purchase price. These costs might soon build up, especially if you are unable to repay the advance in a timely manner.

2. Home equity loan
A home equity loan is an installment loan that provides lump-sum funding with a set interest rate and payback terms of up to 30 years. For this form of loan, your home serves as collateral. It is a revolving line of credit that allows you to borrow cash for a certain time, such as 10 years, followed by a payback period of up to 20 years.

The maximum borrowed amount under a home equity loan is "equal to the current market value of your home minus the total outstanding amount payable towards a home loan". For example- on a home valued at Rs 50 lakh, with an outstanding home loan balance of Rs 10 lakh — the maximum borrowed amount under home equity loan will be Rs 40 lakh (Rs 50 lakh minus Rs 10 lakh)

3. Loan against your insurance policies
This is also one of the types of secured emergency loans. You can use your insurance policies like money-back plans, and traditional endowment plans as collateral. 

Banks accept life insurance plans with a surrender value. Banks often sanction amounts between 85 per cent and 90 per cent of the policy's surrender value. 

4. Paycheck advances
Some companies provide paycheck advances, which enables one to access money from their future wages. Employers that provide this perk may place restrictions on advance amounts and how frequently one may receive them.

5. Borrow from friends and family
In an emergency, one can also borrow money from friends and family. One may not need to provide any collateral for that and repayment might be flexible too. 

6. Personal loan
Personal loans provide one with all of your cash at once and are repaid in predetermined monthly installments that normally last between one and seven years. A major advantage of a personal loan is that it may be financed as soon as one day after you apply, which is useful in an emergency.

How to get an emergency loan?

To get an emergency loan, first of all, one must check their credit score because a healthy credit score opens maximum available options for loan. After that, one must take quotes from different lenders to choose a better option. After choosing the lender, one must fill up the application form online or offline. Then, one must submit all the required documents like ID proof, Aadhaar, and PAN and wait for approval. Once application is approved, the borrower can get their funding within a day or two. Sometimes, one can even receive the funds within an hour.

As most emergency loans come with higher interest rates, one should always do financial planning and add emergency funds for unforeseen situations. Meanwhile, one must choose the right type of loan as per their requirements.