Forget Personal Loans: Here Are 3 Better Ways to Pay for Emergencies

Unexpected expenses have a way of sneaking up on you. It’s easy to feel overwhelmed when that happens, especially since so many people’s budgets have only tightened in recent years. In fact, about 37% of Americans can’t afford an unexpected expense over $400, and 21% have no emergency savings, based on recent data from Empower, a financial services company.

Personal loans can be a good option for unplanned bills, depending on your circumstances. But there may be better options that you should consider first.

Here are three such options.

1. 0% APR intro cards

Credit cards can be a scary source of debt since the APRs can be so high. But if you can qualify for a 0% introductory rate credit card, it can actually be an ideal way to pay for big, unexpected expenses. The introductory rate can last anywhere from six to 21 months, depending on the card.

There are caveats here, though. For example, if you don’t pay off the balance before that introductory period ends, anything that’s left over would be subject to the regular APR. And you have to have good enough credit to qualify in the first place. Still, if you’re able to get a 0% APR card and pay it off before that introductory period ends, you could essentially get a 0% APR loan.

2. Home equity loan

Homeowners who have built up equity can tap into that in the form of a loan, known as a home equity loan (and sometimes called a second mortgage). For context, equity is the value of your home, minus the mortgage balance. So if your home is currently valued at $400,000 and you have a $300,000 mortgage, you’d have $100,000 of equity.

In that case, you may be able to borrow a percentage of that equity (up to a limit that can vary based on where you live), which can be a larger amount of money than you might be approved for with a personal loan. Home equity loans would also provide a lump sum of cash, which you’d pay back in installments. These do charge interest, but it would be at a fixed rate.

The biggest danger here is that these loans are secured by your home. So you’d have to weigh that risk before moving forward. And, depending on the lender, there may be fees that would add to the cost of borrowing as well as a minimum down payment requirement.

Still, if you own your home, have equity, and your credit score is at least in the high 500s (depending on the lender), you may qualify for this type of loan.

3. Line of credit

If you foresee yourself needing an ongoing source of funds, or you’re not sure how much you’ll need, a line of credit can be helpful. A line of credit may consist of a borrowing period (also known as a draw period) followed by a repayment period, or it may allow you to consistently borrow and repay the loan as long as it’s open.

Lines of credit can come in the form of a personal line of credit, which relies entirely on your personal credit to qualify, or a home equity line of credit (HELOC), which uses your house as collateral.

The requirements to qualify for a line of credit depend on the type you get as well as the lender you choose. But you typically need a good credit score, proof of income, and a low debt-to-income ratio.

Unexpected expenses can throw a wrench in your financial plans, but there are options that can save you more money than a personal loan. You just have to know where to look.

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