It happens to the best of us. We're doing what we can to manage our money, but something goes wrong and we find ourselves in a temporary “cash crisis”. There are several ways to get quick money. Each option for an emergency loan comes with its own set of advantages and disadvantages. Be sure to weigh your options carefully.
It happens to the best of us. We're doing what we can to manage our money, but something goes wrong and we find ourselves in a temporary cash crisis. Maybe the gas bill suddenly spiked one month, or perhaps the student loan payment is due a day or two before payday. Whatever the case may be, life can throw us a curveball at a moment's notice, putting us in a financial pickle.
If you're in a “cash crisis” and are in need of some quick funds to bail you out, there are options that you may want to consider. That said, each option comes with its own set of advantages and disadvantages, so be sure to weigh your options very carefully before you make any decisions.
Personal Loan
A personal loan is specifically designed to help cover a variety of personal expenses. Lenders will look into the financial background of a borrower to help determine a person's ability to make required loan payments. A borrower’s financial background will also play a key role in the interest rate that is offered. Generally speaking, a higher credit score often equates to a better rate.
Personal installment loans are usually for short-term purposes and have a fixed interest rate over the course of the loan. The loan amount is repaid at regular intervals in installments over a specified period of time. Payments are set and typically do not fluctuate.
Some personal loans are secured, which means collateral is attached to the loan. In this case, the lender can take over the specified collateral should the borrower default on the loan. Unsecured personal loans, on the other hand, are not backed by collateral, but typically come with a higher interest rate as a result.
Credit Card Cash Advance
The majority of credit cards allow access to cash advances, either through bank account withdrawals or checks. Usually a fee will be charged for the amount advanced. The limit on the amount of money that can be withdrawn for a credit card cash advance is typically the credit limit on the card.
This type of cash advance can be useful for emergency financial situations when fast cash is needed on the spot. That said, these types of advances are usually expensive.
Peer-to-Peer Loan:
There are many websites that help connect borrowers with other peers who are able and willing to extend a personal loan. Investors can lend out money to borrowers without the presence of a financial institution. The interest rates associated with peer-to-peer lending depend on the borrower's credit score and income. Investors will often want to see recent paystubs as proof of income.
This type of lending scenario can often take more time to complete and comes with risks for both borrowers and investors. On the investor side, there is the obvious advantage of being able to make money through interest on the loaned amount. On the other hand, investors are at risk as they do not have much certainty that the borrower will actually pay back their loan.
The borrower has the benefit of having access to funds that otherwise wouldn't be available due to the inability to get approval from a traditional financial institution. However, the interest charged for peer-to-peer loans can be higher than conventional loans.
Home Equity Loan?
Borrowers with some amount of equity built up in their homes may use that equity to cover other expenses. These home equity loans involve the use of the home itself as collateral, which means there is the risk of foreclosure should the loan be defaulted on. The loan amount is based on the value of the home which is determined by an appraiser appointed by the lender.
Generally speaking, home equity loans are not as difficult to get as other types of loans because the home is acting as collateral to help back up the lender. The interest rates also tend to be lower than other types of loans. These benefits, however, are offset by the risk of borrowers losing their homes should they be unable to repay the loan.
Home Equity Line of Credit?
A home equity line of credit (HELOC) is very similar to a home equity loan in that the equity of the property is used as collateral. However, their differences lie in the repayment policies and interest rates charged.
HELOCs work somewhat like a credit card whereby borrowers can borrow up to an amount determined by the lender over the lifespan of the loan.
Throughout this timeframe, borrowers are allowed to withdraw money as needed up to the predetermined limit. This type of credit "revolves" as the money withdrawn is paid back, which means it can be tapped into over and over again as long as the limit is not exceeded.
The Bottom Line?
There are endless scenarios that can creep up that may warrant the need to borrow money. Whether your car broke down right before rent is due, you suffered an unfortunate health crisis that requires an expensive medical procedure, or your HVAC quit working when you need it most, having access to fast money can come in handy.
Fortunately, there are various loan options that may be available to you that can help bail you out of your financial predicament. Now you know some of the pros and cons that should be carefully considered before choosing a specific type of loan.
