Alternative Options if You Don’t Have an Emergency Fund

Putting together an emergency fund is one of the most important financial actions you can take, but it isn’t always easy. From unexpected bills to changes in your financial situation, a variety of setbacks can make building an emergency fund much more of a challenge.

In fact, most personal finance experts apply a “realistic, rather than logical” view to emergency fund saving, understanding that the majority of people can’t always put away as much as they might hope to towards an emergency cash fund.

Luckily, there are alternatives available to putting together an emergency fund. Below, we’ve put together a list of two alternative tactics that you can use if you find yourself in a difficult financial situation and don’t have a cash cushion set aside.

Own a home? Consider using a home equity loan

If you own a home or apartment and have a history of mortgage payments, you might be able to use your home equity as a source of funds in an emergency situation.

Home equity loans allow you to borrow using your home equity as collateral. After your home is valued by an appraiser, you can borrow money based on the value of your property (specifically, the amount of equity you have in the property).

Older homeowners (typically aged 55 and up) can also use an equity release as an alternative to taking out a home equity loan.

In some cases, home equity loans can be cheaper than borrowing money through other options, especially if you’ve diligently paid off your mortgage over years or decades. However, this type of loan is only available if you own property — if you’re a renter, you won’t be able to use it.

Take out a personal loan

If you don’t own any property and need to access funds as soon as possible to pay bills or other expenses, taking out a personal loan can often be the best option.

Personal loans tend to have higher interest rates than home equity loans, as they’re unsecured and thus riskier for the lender. However, personal loans are also far quicker to access, as there’s no long home appraisal process for you to worry about as a borrower.

This means that in some circumstances — like when you only need to borrow a small amount of money — a personal loan can be a good alternative even if you have home equity.

Personal loans are usually processed quickly, meaning you can access your money quite soon after applying. There’s usually some application criteria — typically, lenders will want to see that you have a regular, reliable source of income with which to pay back the loan.

For small amounts, you can also use payday loans, which are designed for one-off costs such as repair bills, medical bills and home repairs.

Since personal loans tend to have higher interest rates than secured loans, it’s important that you plan ahead before you borrow. Plot out the repayments on your calendar and make sure you’ve always got enough cash for each installment to avoid paying more than you need to.

Post shared by Elliot Preece

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