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How a Personal Loan Can Help With Emergency Expenses

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Unexpected emergencies are a part of life. Yet home repairs, auto bills and other expenses that spring up out of the blue can quickly pile up on your credit card and could leave you stuck incurring interest fees that are higher than you might otherwise pay. Here are some alternative ways you can cover those surprise costs. 

Why consider a personal loan

You can’t predict when you’ll get hit with an unexpected bill, of course, but you could curb the shock of paying for it. If you don’t have an emergency fund built up, a personal loan can be a good option to help you pay for expenses that you weren’t anticipating.

Personal loans typically have lower interest rates and more flexible repayment terms, which can make them a good alternative to credit cards. According to Experian, the interest rate on personal loans in Q2 2019 could range from 6% to 36%, depending on the lender, your credit score and financial history, with the average rate being 9.4%. 

According to’s Weekly Credit Card Rate Report, the average interest rate on credit cards was about 16% in August of 2020, which means some borrowers may be paying almost twice as much in interest as compared to what they would have to pay for a personal loan for the same amount of debt. 

You may also have a fair amount of time to pay back a personal loan – repayment terms for personal loans vary by lender but typically range from one to six years. A good credit score will typically get you better interest rates and longer terms to pay these loans off. 

Comparison shop for the best personal loan rates and terms given your financial history before signing up. It’s also a good idea to take the speed of funding into account, too – many lenders take a few days to get you money.

Learn more about Marcus' no-fee, fixed-rate personal loans.

Using savings from a personal loan for future emergencies

The money you could save on interest by taking out a personal loan versus charging expenses on a higher interest credit card could be added to an emergency fund. For example, let’s say, you’re in a car accident and the damages incurred on your vehicle are larger than what your insurance covers, and you end up with $15,000 in credit card debt. Maybe the $15,000 is spread over three credit cards, each with 16.99% APR

If your credit score is good (660 or above), you might qualify for a personal debt consolidation loan with an interest rate that may be lower than the one on your credit cards. 

Assuming you make equal payments on your credit cards and personal loan, with a $15,000 loan at 12.99% APR and a 48-month term, you could save $2,305.54 by moving over your debt from your credit cards. Instead of handing over this $2,305 to your credit card company, you could stash it in a savings account and use it to cover upcoming expenses.  

The strategy in the example above can apply to a variety of emergency scenarios. Actively managing your current debt so that you are paying the lowest interest rate possible can help make paying off any incoming emergency expenses easier. 

The best way to prepare for emergency expenses

Of course, the ideal way to prepare for financial surprises is to have an emergency fund in place. As the name implies, an emergency fund is money set aside to help you with unforeseen financial costs, whether it’s cash for covering medical bills or everyday expenses if you lose a job. You can use the money in your emergency fund to pay off these unexpected expenses quickly. Keeping your emergency fund in a high-yield savings account can be a great option, especially if it allows for easy access and quick withdrawals.

The bottom line

Many of life’s moments, expected and unexpected, can come at a cost. If you qualify, a personal loan could help. If you’re interested in a personal loan, take a look at the personal loans offered by Marcus by Goldman Sachs.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.