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Emergency Loans

It can prove challenging to navigate your finances in post-pandemic Canada. For instance, you could make your best effort to save and budget responsibly. Still, emergencies can arise. When they do, you may have considered applying for a loan.

Keep reading for a complete guide to emergency cash loans in Canada today.

When Life Goes Awry

Life can interfere with even the best-laid plans. For example, your car could break down, or you could need emergency medical treatment. Alternatively, you may come up short on your tuition payment. Your home could even get damaged by a natural disaster.

These things are unpleasant to consider. Still, they could happen. It’s these times when an emergency loan can save the day.

About 19% of Canadians said they plan to apply for an emergency loan in 2021. Another 17% of Canadians said that using for one is a possibility.

Look at our chart to better understand the distribution of people who said they needed an emergency loan in 2021.

How Emergency Loans in Canada Work

You’ll instantly find out whether you qualify for an emergency loan in Canada. You could have funds in your bank in as little as 24 hours. You’d repay the loan each month.

An emergency loan is only for a real emergency. It’s a very short-term loan. Also, it usually comes with a high-interest rate.

A Better Alternative to Emergency Loans

Instead of applying for an emergency loan, it’s better to eliminate the need for one in the first place. You can accomplish this goal with comprehensive financial planning. A good financial plan includes setting aside some earnings into an emergency fund.

You might use a separate bank account for your emergency fund. You can even save your emergency fund in a jar at home. In either case, this fund will help you save for emergencies.

For instance, you may need to pay an insurance deductible after a car accident. Alternatively, you may need dental work that your insurance does not cover. You could even need to hire someone to clear your basement after a big storm or fix a damaged roof.

In all these cases, you’d benefit by saving some money for a rainy day.

Covering Your Emergencies: An Example

Suppose you have a $500 car insurance deductible. Meanwhile, a dental crown might cost upwards of $900. Otherwise, an emergency roof repair might cost $1,500.

You can’t predict what emergencies will arise, but you can try to keep enough in your bank account to cover the most expensive emergency. In our example, that amount is $1,500.

Alternatively, you can save an average amount for all likely emergencies. With our examples, that amount is $966.

You’ll have enough to cover one of the first two emergencies. And, still, you’ll also have enough to nearly cover expenses for the worst-case scenario in our example. An emergency loan could cover the rest.

Filling up Your Piggy Bank

You may also hear someone call an emergency fund a contingency fund. Either way, this money includes funds for significant, unplanned expenses. It serves as a financial safety net.

An emergency fund can ensure you have the resources to deal with unexpected situations. Yet, you won’t have to worry about going into debt if something goes wrong. You also won’t have to worry about paying your bills after an emergency.

There’s one point that’s critical to remember, however. Emergency funds are for primary, unexpected crises affecting your quality of life.

Keeping Your Piggy Bank Full

It’s critical never to use your emergency fund for anything except a real emergency. Here, it’s important not to confuse an emergency with long-term savings goals that are reasonably foreseeable. This perspective is critical, even if your long-term goal is essential.

You need your emergency fund to protect you when a real, unpredictable financial hardship arises. However, you must avoid using it for vacations and down payments, even for a car or home.

Likewise, you wouldn’t use your emergency fund to attend a last-minute wedding. Likewise, you wouldn’t use your emergency fund to cover credit card debts or gifts for special occasions.

Although these scenarios may cause stress, they’re not emergencies.

The Best Laid Plans

Remember that $966 in your emergency fund? If an emergency expense arises that costs more, how will you get the rest of the money you need to recover? This situation is where an emergency loan can help.

Usually, you’d apply for an unsecured personal loan or signature loan in an emergency. However, suppose an emergency arises, and you have less-than-perfect credit and a small emergency fund. In that case, a bank, credit union, or online lender might take a chance to provide you with the added funds you need during an emergency.

Applying for an Emergency Loan

Most of today’s banks have online applications. You can usually apply for an emergency loan without leaving your home. This way, you could receive conditional approval for a loan even before you give the bank your documentation.

If the bank approves your loan, you’ll need to send information like your pay stubs or T4 slips. You’ll likely also need to provide the bank with photo identification, proof of address—like a utility bill—and possibly an image of your SIN card.

Going Through the Funding Process

Often, a lender might approve and fund an emergency loan the same day you submit your application. Otherwise, you might receive approval and funding within 24 to 48 hours.

The application process for an emergency loan works the same as if you were applying for an unsecured loan. You must provide the bank with key information. Altogether, this information might include your:

  • Address verification

  • Date of birth

  • Employment information

  • Full name

  • Identification

  • Proof of income

  • Social Insurance Number

The lender will likely ask you about your expenses, like your current debt and monthly mortgage or rent payments. Finally, the lender will check your credit report and score.

They’ll use all this information to determine your debt-to-income ratio. Now, the lender can assess your ability to take on more debt.

The Costs of Emergency Cash Loans Today

Usually, an emergency loan has a fixed interest rate and term. The lender will determine your annual percentage rate (APR) based on your credit score. They’ll also use the loan request amount and your debt-to-income ratio to determine your APR.

You’ll receive the most competitive APR, fee structure, and terms at a bank or credit union. And the loan term might last for a couple of months to several years at these institutions.

However, online lenders are less competitive. They have fewer application requirements.

You can apply for a loan from an online lender with average or poor credit. However, they’ll charge a higher interest rate to compensate for the increased risk.

Finding the Best Deal

You must shop for the best deal when applying for an emergency loan. Also, it would be best to negotiate your rate with lenders whenever possible to get the most favourable terms.

It would be best if you also tried to find a loan without prepayment penalties. Sometimes, a lender will charge a fee if you pay all or part of the balance in advance.

This kind of fee may seem counterintuitive. However, it’s how some lenders make sure that they make a profit, even if you pay off your loan early. With this in mind, you must read the fine print of any loan agreement.

Repaying Your Emergency Loan

Once you receive funding, you’ll repay the loan with monthly payments. Often, a lender will direct debit the payments directly from your account. Alternatively, they may accept automatic payments via direct deposit.

The lender will arrange the payments by asking you to fill out a pre-authorization form. The document will allow the lender to take repayments directly from your account.

You won’t have to make a manual online payment or write a monthly check. This process works the same way when you make direct debit payments for other bills and utilities.

Is It Really an Emergency?

You should only apply for an emergency loan if you face a real emergency. An emergency loan is a debt that you must repay.

Even if you have no choice but to apply for an emergency loan, you should do it carefully. You must repay an emergency loan just like any other unsecured loan.

Again, the best thing you can do to prepare for an emergency is to set money aside. With money in the bank, you can cover emergency expenses or get a good start on paying them.

How to Get an Emergency Loan

There are times when everyone faces a financial emergency. Getting money to deal with it is often a top priority if you are in a crisis. In that case, you may need to know where to get emergency cash loans today.

You may already have some options for dealing with a financial emergency. If not, however, it’s essential to know where to look, so you avoid high-interest rates and predatory loans.

Let’s look at a few places where you can start your research on getting a loan. The three places to start looking for emergency funding are personal loans, credit cards, and payday loans.

Personal Loans

A personal loan is a form of credit. You can use a personal loan for anything, including an emergency. Depending on your credit, the interest rate for a personal loan can range from the single digits to over 35%.

Some lenders will only work with borrowers who have excellent credit. However, many lenders will work with borrowers with a fair credit history. Also, some lenders offer same-day or next-day funding if you’re approved, especially online lenders.

Credit Card Cash Advance

You can tap into your credit card for emergency funding. Here, you’ll need to see if you can access your credit for a cash advance.

The interest rate for a credit card cash advance varies with credit card providers. However, it can go as high as 25%.

With a credit card cash advance, it’s essential to understand that interest will start to accrue immediately. Therefore, taking a credit card cash advance isn’t like using your credit card to make a purchase, where you get a grace period before interest begins to accrue. Also, credit card companies usually charge an upfront fee representing a small percentage of the cash advance.

Payday Loans

A payday loan is a short-term loan. It is an emergency cash loan today. This kind of loan has an incredibly short repayment term. Usually, you must repay a payday loan in less than 14 days.

Also, payday loans usually have inflated interest rates. On average, the APR for a payday loan can go as high as 400%.

Moreover, paying off the loan within 14 days can prove challenging. As a result, many people take out a new payday loan and carry over the loan repeatedly until they can pay it off while incurring more interest and fees.

In the end, it’s best to avoid a payday loan altogether.

Emergency Loans With No Job in Canada

Suppose you’re unemployed, but you still have some income. In that case, you may still qualify for an emergency loan.

Most lenders require that you have income from steady employment. However, a payday lender may accept another kind of income.

Lenders approve this loan based on other factors like your income source or credit score. As a result, you don’t necessarily need a job to qualify for this kind of loan.

As you can imagine, lenders assume a considerable risk by loaning money to unemployed individuals. Accordingly, they charge remarkably high-interest rates, even compared to payday loans. So if you use one of these services, it’s crucial to ensure you can repay the funds you receive.

Know Your Money

We hope our guide on emergency loans in Canada helps you financially prepare for emergencies. Creditpicks is at your service if you want to learn more about managing your finances. Please feel free to visit and subscribe to our blog.

Did You Know?

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Credit Tips!

Emergency loans should only be taken out if you or your family face dire circumstances entirely outside your control. An emergency loan is still debt, meaning it has to be paid back. So, even if you have no choice but to take out the loan, you should do so with caution as you will be responsible for repaying the loan just like any other unsecured loan.

The best thing you and your family can do is plan for as many types of contingencies as possible. Having cash in the bank will either help you cover the expenses associated with an emergency, or at least give you upfront funds to offset or start paying down any borrowed amount.

As previously noted, if you show financial maturity by establishing and building an emergency fund, financial institutions will always look at this favourably and will likely help you offset any additional emergency costs – even if you have a weak credit record or score. Do not misrepresent your situation in an attempt to take out an emergency loan for other reasons. These are vetted lending facilities, and any falsehoods could be grounds for disciplinary or even legal action by your financial institution.

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