Most Americans do not have enough money put aside to cover their costs in the event of an emergency. With over 240 million phone calls made to 911 each year, and the knowledge that over 42% of personal bankruptcies are due to medical costs, it's easy to see why the average American might need to take out a loan to cover sudden unbudgeted costs. Personal loans have an added benefit, too - small, unsecured loans can be used to improve your credit score.

What's the difference between the two major types of loans? A secured loan is one that is backed by collateral that you pledge against the value of the loan. The lender can then repossess this property if you default on the loan. Great examples of secured loans include car loans, mortgages, and home improvement loans. Unsecured loans are not backed by collateral, which means the lender has little or nothing to repossess if you default on the loan. They are less risky to borrowers than secured loans. Good examples of unsecured loans include personal loans, business loans, and business loans with a personal guarantee.

Let's say you take out a large unsecured loan in the amount of $9,000 for 36 months at 6.4% interest. Your monthly cost would be $275.43 and your interest for the life of the loan would be $916. If you took out $10K at 7% for 60 months, you'd pay $198.01 per month and have $1881 in interest. But if you took out $25K at 7% for 60 months, you'd pay $495.03 and have $4702 total interest. Covering emergencies with small personal loans means that you pay less in interest and can pay them off quickly as well.

So how much can an emergency cost?

The average cost for damage after a home fire can range anywhere between $5000 and $45000 without a home sprinkler system. A home sprinkler system does provide a significant benefit, as damage to homes with those systems runs, on average, about $5000. Kitchen fires can cause $2500-$5000 for a straightforward restoration, between $10,000 and $25,000 for restoration with some rebuilding, and between $50,000 and $70,000 for an upscale restoration.

What about hospital stays? Your costs will vary by region. Patients in the northeast, staying about 5.1 days, can expect to rack up $27,734 in charges, with $9,917 out of pocket. In the Midwest, the average length of stay is 4.3 days, at a total of $21,522 and $8292 out of pocket. Patients in the south stay an average of 4.6 days, racking up $23,695 in costs, with $7,888 out of pocket. And finally, patients in the west can expect to stay about 4.3 days, totaling $35,721 and $9,604 out of pocket. On average, then, most people will spend about 4.3 days in the hospital, averaging a total of $26,120 and paying $8,692 out of pocket.

With those costs, it's easy to see why so many people turn to personal loans to cover what insurance cannot. If you choose to take out a personal loan, use the opportunity to your advantage. Pay it off quickly, never miss a payment, and never pay late. In that way you can build your credit score - making a potentially bad situation into a good thing.

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