Why getting an emergency loan is easier than ever for consumers

Key takeaways

• 30% of Americans couldn’t afford an unexpected $2,000 expense.
• With traditional options, borrowers needing an emergency loan often require outstanding credit and are sometimes faced with predatory lending terms.
• Modern financing providers like Wisetack are shaking things up by offering consumer-friendly loans with fair terms, fewer fees, and no credit impact to qualify.
• Promoting the benefits of these modern options to your customers can ease their concerns about financing and help you land more jobs.

Many Americans can't afford unexpected expenses

If there’s anything the last couple of years has taught us, it’s that emergencies happen.

From a global pandemic to subsequent layoffs and extreme inflation, consumers today are feeling the pinch — and unfortunately, millions wouldn’t be able to handle another emergency, like a surprise medical or home repair bill. According to the TIAA Institute, 30% of American adults wouldn’t be able to cover an unexpected $2,000 expense within a month.

In the past, getting a fair last-minute loan for an emergency was challenging. Sure, lenders were willing to lend, but in these situations, consumers often needed outstanding credit or were sometimes confronted with predatory lending terms. 

Fortunately, modern financing has made it easier than ever to get a fair loan when you need it most. Here’s what you need to know.

What are emergency loans?

Emergency loans provide quick cash access to cover short-term financial emergencies, like an unexpected vet bill.

There are two main types of emergency loans: 

• Secured loans are backed by collateral, which is property you pledge to the lender (like a car, home, or piece of jewelry) as security for loan. If you default on the loan, the lender can then seize the item. Secured loans are less risky to lenders since they can sell the collateral to recoup their loss, these types of loans are often easier to qualify for and can come with lower interest rates.
• Unsecured loans are loans that aren’t backed by collateral, like a personal loan. Instead, the lender bases your approval and terms on your creditworthiness. Unsecured loans are usually harder to qualify for and often come with higher interest rates because they’re riskier for the lender.

Traditional emergency loan options

You’ve probably seen storefronts promoting traditional emergency loans before — they’re the ones advertising “quick and easy advances” or “money when you need it.”

However, what they often don’t advertise is their sky-high rates — think APRs in the triple digits. (For reference, the National Consumer Law Center calls loans with interest rates above 36% “destructive credit that harms lives and destroys financial inclusion.”)

These lenders usually charge exorbitant rates partly because they’re often loaning to risky individuals and partly because they can: they know these borrowers need money fast and may have few other options.

Traditional emergency loans often include options such as:

• Payday loans: Payday loans are loans someone is responsible for paying back by their next payday. They give the lender a post-dated check or permission to withdraw money for the amount they owe, and the lender will cash it on the due date. As APRs often approach 400%, many borrowers end up being unable to pay these loans off in time and have to roll the loan into a new loan, trapping them in a vicious debt cycle.
• Car title loans: These are loans that use a borrower’s vehicle as collateral. If they can’t pay the loan off, the lender can seize their car and title. With the average APR ranging from 250-300%, it’s no wonder the CFPB found that 20% of individuals with these loans get their car repossessed, and only 12% are able to repay their loan without renewing.
• Pawn shop loans: The pawn shop gives a borrower cash for an item. If they pay off the amount you owe by the due date, they can get your item back. If they can’t repay the loan, the pawn shop sells the item to recoup their loss. While pawnshop loans’ APRs can reach 200%, they’re actually usually less expensive than payday and car title loans (but obviously still not consumer-friendly).
• Credit card advances: A borrower uses their credit card to borrow cash and pay it back with the rest of their credit card statement. While sometimes cheaper than other options, simply using a credit card could be a better option than taking an advance, as many companies charge cash advance fees and higher APRs for cash advances.
• Personal loans: With interest rates currently ranging from around 3-36%, personal loans are often one of the fairest types of traditional emergency loans. However, borrowers may need to wait days for the money (which isn’t exactly practical when dealing with emergencies), and since they’re unsecured, their rates largely depend on the applicant’s credit score.

Modern emergency loan solutions

The traditional options listed above are still around and frequently used today. However, there are also other more modern solutions focused on making great options accessible to more borrowers. Many of these options are offered by online financing providers, like Wisetack, who aim to help consumers in need without taking advantage of them and by giving them an excellent borrowing experience. Here are some advantages you may find with these modern solutions (and that you’ll always find with Wisetack):

• Quick application: Instead of filling out a lengthy paper application in person, consumers can simply head online via their mobile device to complete their application and view loan options in seconds.
• No credit impact: Most lenders don’t need to do a hard credit check to determine your creditworthiness. Some modern solutions have switched to the more consumer-friendly soft pull, as these checks don’t impact credit score.
• Multiple borrowing options: Once a consumer submits their application, some lenders offer multiple plans with different terms so they can choose the best option for your situation. For example, they may offer a three-month plan with a lower APR and higher monthly payment or a six-month plan with a higher APR and lower monthly payment.
• Fewer fees: Some modern lenders have eliminated common fees, like late fees, prepayment fees, and origination fees, so consumers can focus on paying down their balance instead of penalties.
• Fair rates: Emergency loans don’t need to come with triple-digit APRs. In fact, Wisetack's options start at 0% for qualified customers, and never exceed 29.9% APR.¹ By contrast, many of the more traditional options might reach (or exceed!) the 36% interest rate cap the NCLC recommends.
• Transparent terms: Consumers can see all the terms of their loan upfront, so they’re not surprised by how much they’re expected to pay each month or how much they’ll pay in total interest.
• Quick approval and funding for merchants: With modern technology, consumers can often get approved in seconds and merchants can receive funds in their account within just a few days of approval.

Bottom line

When a customer is stressed about an emergency, they might be tempted to turn to legacy options because those are the first ones that come to mind. However, one of the best things you can do as a business is to encourage them to conduct research and compare their options. Not all loans are created equal, and helping your customers find fair loans can help you earn their business — and save them a ton of money and stress.

Emergencies happen, and they shouldn’t condemn anyone to financial hardship. Fortunately, it’s easier than ever to get a fast and fair loan for emergencies — if you know where to look.

At Wisetack, we offer fair and transparent consumer loans that help companies boost sales and make it easier for consumers to afford the services they need. If you’re interested in learning more about our product or our values, contact us and we’d love to chat.

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¹ All loans are subject to credit approval. Your terms may vary. Wisetack loans are issued by Hatch Bank. For example, a $1,000 purchase could cost $45.18 a month for 24 months, based on a 7.9% APR. See additional terms at wisetack.com/faqs.