Emergency Long-Term Loans
Lenders are highly reluctant to provide long-term loans for emergencies. There is a strong preference among lenders to only provide unsecured loans for specific purposes, such as tuition, cars, home purchasing, business financing and other similar purposes. Most emergency loans are short-term, very high interest and carry significant fees.
Other People Are Reading
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Significance
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The least expensive emergency loans are often available through universities to provide for living expenses and tuition for students that have found themselves either suddenly unemployed or cut off from sufficient financing for them to continue their education without disruption. These typically use school bursars as intermediaries, but the loans are typically very short-term--less than 30 days--even though the interest rates are relatively low. Students who need emergency financing can use these to hold off disaster while searching for a longer term loan to cover their expenses.
Function
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Credit cards can function as long-term sources of credit, but their interest rates typically exceed 10 percent once an adjustable rate card has gone past its introductory rate period. When used responsibly, credit cards can act as an emergency safety net that can be renewed regularly without very high fees. Business credit cards in particular are great for meeting unpredictable expenses that can't be handled with cash on hand.
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Features
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The best way to get emergency long-term financing is through a secured loan or line of credit of some kind. These do not require an excellent credit rating and typically have relatively low interest rates. Securing a personal loan with a car, house, business or other major asset will make it easier to acquire long-term emergency financing. Individuals with excellent credit will find it much easier to acquire an unsecured personal loan to pay for their emergencies, most of which have repayment periods of between five and 15 years.
Considerations
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A home equity line of credit can act as a secure safety net, but they are relatively inflexible for the long-term. Home equity loans have a draw down period during which money can be borrowed followed by a long repayment period. The interest rates on these are relatively low, but entering default on the loans can lead to home foreclosure--compounding whatever emergency that the loan or line of credit were taken out to address in the first place.
Prevention/Solution
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When taking out a long-term loan to address an emergency, develop a plan for repayment. Taking on debt innately increases a household's vulnerability to emergencies. The more debt that a household takes on, the higher their interest payments and the lower their ability to take on additional debt if another emergency comes along. A high debt load makes it more difficult to develop savings, which are a far greater source of permanent security than any long-term loan.
Potential
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Some banks are willing to provide emergency financing for specific expenses, such as surprise medical bills, car repair, appliance maintenance or home repair. These loans are typically short-term, but they can be repaid using a long-term personal loan, and it can improve the chances of getting such a loan approved, as lenders consider debt consolidation a valid reason for taking out a long-term unsecured loan.
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Resources
- Photo Credit Chris.Violette, Flickr
