When to Use Personal Loans for Unexpected Expenses

2020 has been the year that no one saw coming. With COVID-19 and its effects rampaging the economy, you’ve probably experienced a surprise expense or loss of income already this year. If you’re in the middle of it, you’re probably feeling a lot of extra stress as you figure how to deal with unexpected expenses.

Relieve some of your worries by breaking down your options for personal loans for unexpected expenses and learn how to prepare before the next surprise bill shows up in your mailbox.

Check Your Personal Loan Rates

Answer a few questions to see which personal loans you pre-qualify for. It’s quick and easy, and it will not impact your credit score.

Get Started

with our trusted partners at Bankrate.com

In this article

    You have unexpected expenses: what now?

    An unexpected expense will throw a wrench in even the best-planned budgets. It could drain your emergency savings and cause a lot of stress as you worry about how you’re going to pay for it. Even if you don’t have the cash in your savings account to cover it, you can still turn to a personal loan, a credit card or your friends and family to help you out of a tough spot.

    Using a personal loan for unexpected expenses can help you spread out the cost over time. Instead of one big payment, you can break it up into several set monthly installments. You’ll have to pay interest on the loan, but you can often lock in a relatively low rate. The best personal loans allow you to apply completely online and get your money to you quickly after you’re approved.

    [ Related: Pros and Cons of Personal Loans ]

    You can also turn to credit cards to help you pay for an unexpected expense. If your credit is good enough, you can find cards that offer a 0% intro APR, allowing you to pay off the expense over time without paying interest.

    Finally, you can ask friends and family to lend you some money. Your loved ones will often be willing to help, but it can be difficult to ask them for it. You’ll often find that friends and family are much less strict on terms and rates when they lend you money than a bank, but that doesn’t mean you won’t run into problems. Borrowing money from someone you know can strain your relationship.

    Unexpected expenses from COVID-19

    COVID-19 has affected nearly everyone this year with some kind of unexpected expense — from stocking up on food (and toilet paper) to big medical bills or even job loss.

    And with the cold and flu season approaching and increasing COVID case numbers in many states, you need to be ready for this to continue for several more months. So, how do you make sure you’re ready financially?

    [ Read: A COVID-19 Infection Could Cost You $1,400 (After Insurance) ]

    If you haven’t faced any kind of surprise expense yet, you should prepare by cutting your expenses and boosting your savings. What did you spend money on last month that was unnecessary? Trimming your budget down to only the necessities for a little while gives you some wiggle room when something unexpected pops up.

    You should use what you saved to boost your savings account. The more money you can stash away before you face an unexpected expense, the more prepared you’ll be to handle it.

    Right now isn’t a great time to make big purchases or take out more debt — especially if you don’t have an emergency fund that can cover a large unexpected expense. Doing so can make it difficult for you to either pay for the expense yourself or take out a personal loan to cover it.

    Tips for dealing with unexpected expenses 

    1. Prioritize your spending

    Unexpected expenses are often ones that you can’t put off for later, so you’ll have to shift your spending priorities for a bit until it’s paid off. Sit down for a couple of minutes, create a list of what you spend money on each month and rank how important each expense is to you.

    [ Read: Your Pandemic Budget: How to Save for Another 12 Months]

    2. Dip into your savings

    If you don’t have any extra leeway in your monthly budget but you’ve got a decent rainy day fund in the bank, now might be a good time to use your savings to pay for that flooded basement. After all, that’s what an emergency fund is for, right?

    3. Sell some of your stuff

    You probably have a bunch of stuff sitting around your house you don’t use very often (or at all). You can clean out your closets and clear out some storage space by listing your belonging on online marketplaces. Sell more valuable first so you can pay for your unexpected expenses quickly without having to nickel and dime your way to it.

    [ Read: 30 Legitimate Ways to Make Money Fast ]

    4. Swipe your credit card

    Credit cards often come with high interest rates, but they’re great to have during an emergency. Search for a card that earns rewards and offers a 0% intro APR. If you don’t qualify for one of these cards, you can still use another credit card to pay, but pay off your balance as quickly as possible so you don’t get buried by your card’s interest rate.

    5. Take out a personal loan

    Instead of a credit card, you can turn to a personal loan for expected expenses. Even if you have bad credit, you can still get a personal loan that puts much-needed money into your account quickly. You will pay a higher interest rate on bad credit personal loans, but you’ll have the benefit of a fixed payment spread out over time to cover your emergency.

    How unexpected expenses can affect your credit

    Unexpected expenses can have a few different effects on your credit, depending on how prepared you are for them.

    If you have enough money in savings to cover the expenses yourself, it won’t change your credit at all. However, if you have to use your credit card or take out a personal loan to pay for it, your credit score will most likely go down — at least at first. A big factor determining your credit score is your debt-to-limit ratio. The more you owe and the closer you are to your limit on your credit card, the lower your score will be.

    [ Read: Best Emergency Loans of 2020 ]

    But it can also be an opportunity to boost your credit over time. As you make on-time payments and reduce your total debt, you’ll see your credit score creep back up. If your credit scores are already low, using loans for unexpected expenses can be a good way to begin rebuilding your credit so you qualify for better rates in the future.

    Check Your Personal Loan Rates

    Answer a few questions to see which personal loans you pre-qualify for. It’s quick and easy, and it will not impact your credit score.

    Get Started

    with our trusted partners at Bankrate.com

    We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Trevor Wallis

    Contributing Writer

    Trevor Wallis is a St. Louis-based personal finance writer who teaches people how to achieve freedom through good money practices. He’s written for Bankrate, NextAdvisor, Rewards Credit Cards and Online Loans. When he isn’t writing, he’s roasting specialty coffee and planning new ways to use credit card rewards to explore the world with his wife and newborn son.

    Reviewed by

    • Courtney Mihocik
      Courtney Mihocik
      Loans Editor

      Courtney Mihocik is an editor at The Simple Dollar who specializes in personal loans, student loans, auto loans, and debt consolidation loans. She is a former writer and contributing editor to Interest.com, PersonalLoans.org, and elsewhere.