From the BlogSubscribe Now

Pros and Cons: Emergency Loan or Defer Bills

There is a big debate regarding if a person should defer their bills or take an emergency loan to cover the bills. Emergency loans are not meant to be long term financial solutions they are smaller loans for when you say “I need money fast & today” to get you through for a few weeks. There are pros and cons of every decision we make, including taking an emergency loan.

An Emergency Loan Offsets Fees

When you take an emergency loan, you have all the cash you need to pay on your bills. This means next month, you don’t have to have the collection calls. Take a credit card lender for instance. If your lender approves you for deferred billing, this only gives you a break on making the monthly payment. This does not excuse the interest accruing daily.

Therefore, the $50 minimum payment you have made monthly is now generating interest on that as well. You must be prepared for a higher credit card balance when you are ready to start making payments again. Some creditors will increase your minimum monthly payment to catch you back up.

Let’s say your lender does not approve you to defer your payments. If you can’t make the payments, you are looking at a monthly late fee as well as the possibility that your interest rate may increase due to missing payments. You will fall behind fast and be in a worse situation than if you went along and took an emergency loan.

An Emergency Loan Prevents Your Accounts from Being Closed

Many people do not realize that a lender can close your account once you have breached terms. Continuously deferring your payments, having too many late payments, no payments, and bounced checks can close your account for good. It may be a few years before you repair your credit to be approved again. Taking an emergency loan solves that dilemma because it gives you the cash you need to pay the balance in full or enough to get you back on your feet to make the monthly payments.

Also, think of your car loan. Deferring that is never a good idea. You need your vehicle to get you to work to pay your bills. Having an account too far behind opens you up to repossession. Taking an emergency loan can prevent the repossession of your vehicle and the costly fees of getting it back.

An Emergency Loan Can Rack Up Fees and be Too Soon to Pay Off

As emergency loans are meant for emergencies, some people take advantage of them. They don’t take them seriously and that is how they fall deeper into debt. First, you should only defer a payment on a bill due to an unforeseen circumstance, such as an emergency car repair, medical expenses, or loss of income.

If you defer a payment because you need the money to go on vacation, you are going to have to suffer the consequences of your next paycheck going towards the emergency loan. You must answer if it’s worth it. If you were unable to afford the bills and your vacation, what situation will you be left in to pay your emergency loan off. It’s possible to be wrapped in the emergency loan trap and pay those few deferred payments repeatedly.

Join the Discussion!