The pandemic has driven home the significance of emergency funds. The need for emergency funds can arise any time even during normal times. Therefore, one must know how to arrange it in crisis.
A personal loan is the most popular avenue to arrange emergency funds. Banks and NBFCs sanction personal loan very quickly, even within a couple of hours. But the interest rate of personal loan is a bit high. But no collateral is needed for these loans.
Credit cards also play a pivotal role when one needs some emergency money. A credit card gives you instant money through ATMs but the charges are much higher. Therefore, it is better to avoid credit cards when emergency fund is needed.
A line of credit (LOC) is a preset borrowing limit of the customer that can also be used at any given time. But the interest rate of LOC is less than credit card loans. When a borrower applies for a line of credit, he/she can draw up to a certain amount on an as-needed basis. The interest will be charged only on the amount borrowed and as money is repaid, it can be borrowed again in the case of an open line of credit.
Banks generally offer this overdraft facility to some special customers. This facility and the amount depend upon the balance the person has in his/her bank account. This facility is not for all, so it is a special offer.
A liquid fund is another option to arrange funds during emergency. Liquid fund offers better interest rate than savings account, i.e. 6%-8% and also can provide cash within 24 hours. People find liquid fund is one of the best choices for arranging emergency funds.
Savings accounts are the most convenient and stereotype option to get emergency fund. From savings account one can withdraw money within a minute. One should keep at least four-six months expenditure in the savings account as emergency fund, advise experts.
“If you plan well you should set aside some amount of money for emergency purpose. Liquid fund or savings accounts are the best option because it’s your own money. But if you go for any other option, you have to pay high interest rate as you have to borrow money from banks or NBFCs,” said Nilotpal Banerjee, a personal finance expert from Kolkata.
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