When a sudden home repair hits—like a leaking roof or broken heater—you’ll need to figure out how to cover the cost quickly. Two common choices people consider are using their emergency savings or taking out a personal loan.
The best option for you will depend on a few key things: the total cost of the repair, your current credit score, and how comfortable you are with taking on more debt.
Let’s break down both options so you can make the smartest decision based on your situation.
Why You Should Consider Using Your Emergency Fund First
Your emergency fund is money you’ve saved specifically for unexpected costs, like home repairs, car trouble, medical bills, or other surprise expenses. So when something breaks in your house, it’s completely okay—and even smart—to dip into that fund.
Using your emergency savings means you won’t have to borrow money or pay interest on a loan. This helps you avoid new debt, which keeps your overall financial stress lower. Once you’ve used some of the emergency money, you can work on rebuilding it over time.
If your emergency fund is in a high-yield savings account, your money can grow faster than it would in a regular savings account because of better interest rates. Even though the gains aren’t huge, they still help your savings grow faster over time.
As of now, the FDIC reports the national average interest rate for regular savings accounts is only about 0.07%. In contrast, high-yield accounts often pay over 10 times more than that.
Two great high-yield savings options are:
- Marcus by Goldman Sachs High Yield Online Savings – This account is known for charging no monthly fees, no excessive transaction fees, and no overdraft penalties. You can move your money to a checking account and use a debit card or ATM to access it.
- Synchrony Bank High Yield Savings – If you prefer easier access to your money, this account includes a debit card, letting you withdraw cash directly from ATMs without needing to transfer it first.
When a Personal Loan Might Make More Sense
If you don’t have an emergency fund—or don’t want to use up all your savings—you might think about getting a personal loan instead.
Personal loans can be a better choice than credit cards because they usually have lower interest rates. According to the Federal Reserve’s latest numbers, the average APR for personal loans is around 9.58%, while credit cards average 16.30%.
That means you’ll likely pay less in interest with a loan—unless you’re using a special 0% APR card (which comes with conditions). Still, the actual rate you get on a loan depends on your credit history and financial profile.
Personal loans are commonly used for big one-time expenses, including home repairs, weddings, vacations, or medical emergencies. You can usually borrow up to $100,000, though the amount will vary by lender. You’ll pay it back in fixed monthly installments over a set period (called the loan term), which could range from a few months to several years.
Good news: Even if your credit isn’t perfect, some lenders offer personal loans to people with fair or average credit. Here are two options:
- Upstart Personal Loans – Great for borrowers with limited credit history. It uses other factors like your education and employment to assess your eligibility.
- Avant Personal Loans – Designed for people with fair or average credit. You can get funding as early as the next business day, which is helpful when you need to fix something urgently, like a burst pipe or broken furnace.
Also, taking out a personal loan might help improve your credit score if you repay it responsibly. That’s because it adds to your credit mix, which makes up 10% of your FICO credit score. But be aware: applying for a loan might cause a temporary dip in your credit score because of the hard inquiry.
Bottom Line: Which One Should You Choose?
At the end of the day, your decision will mostly depend on two things: how much the repair costs and how comfortable you are taking on new debt.
If the cost is manageable and you have enough saved up, it’s usually better to use your emergency fund. This way, you avoid paying interest and keep your finances simpler. Emergency savings exist for situations like this, so it’s totally okay to use them.
But if the repair is expensive, or you’re not comfortable draining your savings, a personal loan can be a good alternative. Just remember, loans come with interest, which means you’ll pay more overall than you would by just using your own money.
Final Thoughts
Whether you choose to use your emergency fund or get a personal loan, make sure the decision matches your overall financial goals. Ask yourself:
- Can I afford to wipe out part of my emergency fund right now?
- Will taking on a new monthly payment stretch my budget too thin?
- Which option has the lower total cost?
If you decide on a loan, shop around for the best rates and terms, and consider lenders who cater to your credit level. If you use your emergency fund, create a plan to rebuild it over time, so you’re ready the next time life throws a curveball.
Remember, both choices have pros and cons—but being prepared, staying informed, and weighing your options carefully can help you make the best move for your situation.
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