Emergency Loans: Types, Tips, and Eligibility

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Sometimes, life throws unexpected challenges our way- we might find ourselves in urgent need of financial help. In such times, the need for an emergency loan becomes more apparent than ever. 
If you're looking to get emergency loans, it's important to understand the different types available, their requirements, and some helpful tips on how to apply for one. 

What are Emergency Loans and How Do They Work?

Emergency loans are essentially quick financial solutions designed for unexpected situations that require immediate monetary intervention. 

 

If you have a medical emergency, sudden repairs, or any urgent financial need, you can get the necessary funds in a short time with an emergency loan. These loans come in various forms- payday loans, cash advances, personal loan, credit-card cash advances, and more.

 

The process for obtaining an emergency loan in UAE or anywhere else begins with an application, where you need to provide personal and financial information. This information helps lenders evaluate your creditworthiness and your ability to repay the loan. 

 

Once approved, you'll enter into a contract with the lender that details the loan amount, interest rate, fees, and repayment schedule. Upon signing this agreement, the lender will disburse the funds, often within a single business day.

 

Important: Repayment starts as per the agreed schedule, usually with regular monthly payments until the loan is fully repaid. It's essential to follow this schedule to avoid negative impacts on your credit-score and maintain your future borrowing capabilities.

 

 

Understanding the Emergency Loan Requirement

Emergency loans can be used for a variety of urgent financial needs, each situation underscored by the emergency loan requirement for immediate funds. Here are some common uses-

  • Medical Bills: An emergency loan can help cover unexpected medical costs such as those from an emergency room visit or unforeseen medical procedures. This way, you can receive care without delay.
  • Rent and Mortgage Payments: If you're short on cash when your home payment is due, an emergency loan can bridge the gap until your next paycheck. Importantly, this prevents late fees and keeps your housing situation secure.
  • Utilities: To avoid service interruptions and potential impacts on your credit Score, an emergency loan can be used to pay utility bills like electricity and phone on time.
  • Funeral Expenses: In the unfortunate event of a loved one’s demise, the immediate emergency loan requirement can arise to cover funeral and other related expenses, especially if these were not pre-planned or covered for by the deceased.
  • Home or Car Repairs: For urgent repairs that can't wait, such as a broken furnace in winter or a malfunctioning car necessary for commuting, an emergency loan in UAE can provide quick access to funds.

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Types of Emergency Loans

Before trying to get emergency loans, let’s first understand some of the major types of emergency loans in UAE-

  • Personal Loans:

A personal loan covers various personal expenses like medical bills, home repairs, or weddings. Remarkably, you don't need to put up any collateral- like your house or car- to get one. The amount you can borrow and the interest rate depend on your income, credit history, and the lender's policies. Personal loans give you the flexibility to use the money for almost anything you need. Just like any other loan, you pay it back in fixed monthly payments over time.

 

Aspect

Features

Approximate Interest Rate

Varies by bank, starting from 2.19% p.a. (fixed) or 6.99% p.a. (reducing balance)​ 

Collateral

None required

Maximum Loan Amount

Some banks offer up to AED 5 Million​ 

Loan Duration

Up to 48 months, with flexibility depending on the borrower's choice and repayment capability

Pros and Cons

  • Pros include no collateral requirement and flexible repayment tenures. 
  • Cons may include varying interest rates as per the borrower's qualifications.

 

  • Payday Loans:

Payday loans are small, short-term loans designed to cover expenses until your next payday. They're known for being easy to get, even if your credit isn't great- this is because the approval often doesn't depend on your AECB score. 

With that said, keep in mind that payday loans come with quite high interest rates and fees, which can make them more expensive than other types of loans. They're meant to be a last resort when you need cash immediately and have no other options.

Aspect

Features

Approximate Interest Rate

Higher than other loan types due to their nature and risk

Collateral

Not typically required

Maximum Loan Amount

Lower compared to personal loans, focusing on immediate, short-term needs

Loan Duration

Short-term, usually expected to be repaid by the next payday

Pros and Cons

  • Pros include fast access to cash.
  • A significant disadvantage is the high interest rate, making it an expensive borrowing option​.

 

  • Credit Card Advances:

A credit card advance is when you use your credit card to take out cash. It's like using your credit card to buy something, but instead, you get cash. While this can be convenient if you need money in a hurry, it also comes with high fees and interest rates. 

Aspect

Features

Approximate Interest Rate

Generally higher than the card's rate for purchases

Collateral

None required

Maximum Loan Amount

Depends on the available credit limit

Loan Duration

Flexible, but interest accumulates until repaid

Pros and Cons

  • Provides immediate access to funds 
  • High-interest rates and fees can make it an expensive option

 

  • Loan Against Life Insurance Policy:

If you have a life insurance policy with cash value, you can borrow money against it. This means you're taking out a loan from the insurance company- the cash value of your policy is the collateral. 

One advantage of this option is that the interest rates are usually lower than for unsecured loans or credit card advances. However, if you don't pay back the loan, it can reduce the death benefit that your beneficiaries receive- in some cases, it can cause the policy to lapse as well.

Aspect

Features

Approximate Interest Rate

Generally lower than unsecured loans

Collateral

The cash value of the life insurance policy

Maximum Loan Amount

Depends on the policy's cash value

Loan Duration

Flexible, but must be repaid to avoid policy lapse

Pros and Cons

  • Lower interest rates
  • Major disadvantage- risking the policy benefits if the loan isn't repaid

 

Advantages and Disadvantages of Emergency Loans

The major advantages and disadvantages of an emergency loan in the UAE are given below:

Advantages of Emergency Loans

  • Flexibility: Emergency loans offer versatility in usage. They can cover expenses from medical emergencies to urgent repairs or bridging financial gaps until the next paycheck.
  • Online Prequalification: Some lenders allow you to see potential loan offers without affecting your credit score.
  • Fast Funding: Unlike traditional loans, emergency loans can be processed and disbursed quickly- often within a day or a few business days- which is crucial during emergencies.
  • Accessibility: These loans are accessible even to those with less-than-perfect credit scores.
  • No Collateral Needed: Most emergency loans don't require collateral, making them more accessible to those without assets to pledge​.

Disadvantages of Emergency Loans

  • Fees: Be mindful of origination fees and potential penalties for early repayment, which can add to the cost of the loan.
  • Small Loan Amounts: Although individuals need emergency loans when facing urgent requirements, it’s worth noting that the amounts may be smaller than those for longer-term loans. As a result, such loans may not be able to cover expensive emergencies.
  • Credit Consequences: Late payments or defaults on emergency loans can negatively impact your credit score.
  • Interest Rates: Emergency loans often come with higher interest rates, especially for those with lower credit scores. This, in turn, makes them more expensive compared to other types of loans​.

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Tips for Choosing the Best Emergency Loan

When choosing the best emergency loans in the UAE, it's important to consider a variety of factors so that your loan fits your need for an emergency loan efficiently and effectively. 

Here are some tips to guide you in making the best decision-

  • Compare Interest Rates: Interest rates can vary significantly between different lenders. Spend time comparing both flat and reducing interest rates offered by various banks to find the most cost-effective option.
  • Review Loan Terms: Consider the flexibility of the loan terms, including the repayment period and any potential fees for early repayment. Look for loans that offer terms that align with your ability to pay back the loan​.
  • Consider the Speed of Disbursement: When you need emergency loans, the speed at which you can access the funds is crucial. Check how quickly each lender can process and disburse the loan.
  • Eligibility Requirements: Each lender will have specific eligibility criteria, such as minimum salary requirements, employment status, and age limits. Make sure that you meet these criteria before applying to increase your chances of approval​.
  • Additional Fees and Charges: Be aware of any processing fees, late payment penalties, or other charges that could increase the cost of the loan. Choosing a loan with minimal additional fees can significantly reduce the overall expense​.
  • Read Customer Reviews: To get the best emergency loans, look for reviews and testimonials from other customers to know about their experiences with different lenders. This can provide insights into the lender’s customer service and the ease of the loan process​.

FAQs

Q. What is an emergency loan?

An emergency loan can help you instantly meet unexpected expenses — this could include medical bills, home repairs, or urgent travel expenses. These loans are usually short-term with a fast disbursement time to address immediate financial needs.

Q. How quickly can I receive funds from an emergency loan?

While the speed of fund disbursal can vary by lender, most emergency loans are designed to be disbursed quickly- often within one business day after loan approval. Some lenders even offer same-day funding if certain conditions are met.

Q. What are the typical interest rates for emergency loans?

Interest rates for emergency loans can vary as per the lender and your credit profile. Generally, these loans have higher interest rates than traditional personal loans due to the short-term nature and the higher risk associated with less stringent credit requirements.
 

Q. What kind of documentation do I need to apply for an emergency loan in UAE?

Most lenders require proof of income, such as a recent payslip or bank statement, proof of identity, and residency. The exact documents can vary, so it's important to check with the lender for their specific requirements.

Q. Are there any alternatives to taking out an emergency loan?

Yes, alternatives to emergency loans include using a credit card cash advance, borrowing from friends or family, or perhaps a salary advance from your employer. It’s worth noting that each option comes with its own advantages and disadvantages, making it important to consider your financial situation and repayment ability before going for one.

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