Managing finances effectively all the time can be hard, especially during emergency circumstances that demand more money than you have probably saved. Getting financial aid from reputed banking and financial institutions can help you in managing your immediate expenses effectively. Modern age financial institutions have revolutionised the experience for customers by addressing their pain points effectively. Most people were afraid of a lengthy documentation and approval process for getting a loan. Today, lending institutions even offer instant loan online that can be used to meet emergency expenses. Read on to know more about emergency loans.
Understanding emergency loans
The global COVID-19 pandemic had brought things to a standstill, impacting businesses and individuals across the globe. To tackle financial emergencies businesses and people had to resort to emergency loans. An emergency loan can be broadly explained as any loan that a borrower can obtain on short notice to cover urgent expenses. An emergency loan can be opted for by both businesses and individuals, depending on the nature of expenses. Emergency business loans help companies to continue their operations smoothly by addressing urgent expenses. Emergency personal loans are taken to finance immediate personal expenses such as medical bills.
Pros of an emergency loan
There are many benefits of availing of an emergency personal loan, some of the most prominent ones are listed below.
1. Easy and quick application process
One of the key advantages of an emergency loan is that it is quick and easy to apply for. Most financial institutions today offer an online loan applications process. You can apply for an instant loan online from the comfort of your home without visiting any branch office. It requires a digital copy of all crucial documents including ID proof, address proof, PAN card, income proof, etc. The loan application process is quick and easy. Since most of us are accustomed to the online process, it’s fairly simple to do.
2. Flexibility
Another important benefit of an emergency loan is that it is highly flexible. An emergency loan can be used to cover a wide range of expenses. People take an emergency business loan to cover expenses related to inventory, urgent office maintenance, last-minute staffing, etc. An emergency personal loan is taken mostly for medical emergencies and debt consolidation. The borrower has full flexibility to use the funds as per their requirements and discretion.
3. Collateral-free debt
Most emergency loans offered by various financial institutions today are collateral-free. The borrower doesn’t need to provide any asset as security against the loan. Borrowers can take a sigh of relief as there is no asset involved and therefore no chances of any confiscation on account of default. However, one must always repay the loan timely to avoid unnecessary penalties and credit damage.
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4. Flexible loan tenure
Emergency loans offer a flexible loan tenure to borrowers for repaying the loan amount. Most emergency loans have a repayment tenure in the range of 12 to 60 months. Borrowers can choose to repay the borrowed sum as per their convenience. A longer repayment tenure means lower EMIs. One must choose a loan tenure depending on their repayment capacity.
Cons of an emergency loan
Now that we know about the main advantages of an emergency loan, let’s take a look at some important disadvantages of the same.
1. Higher interest rate
The interest rate charged for an emergency loan is relatively higher than other loans. However, this can vary to a great extent depending on your lending institution’s policies. It also changes depending on the credit profile of the borrower. If you have a good credit score then the interest rate charged will be comparatively lower.
2. Smaller loan amount
An emergency loan is processed and disbursed within a short period. Financial institutions also have a lenient documentation process for these loans. Therefore, the amount one can borrow on account of an emergency loan is lower than other loans. Since there is no extensive check conducted, it is safe for banks to lend a lower amount. However, most financial institutions offer a decent loan amount that is good enough to meet any kind of emergency expenses.
3. Stricter requirements
Emergency loans for businesses can have stricter requirements as there is no collateral involved. They might have to submit multiple income proofs and other important documents. This can be challenging for small businesses that have been in the market for a short period.
