Through AJ Smith / Credit.com
Totalized your car? Have you had a medical emergency? Unexpected job loss? When you’re strapped for cash, it can seem like there’s nowhere to go.
In fact, there are tons of options when you need the cash and have run out (or never had) a emergency fund. Of course, the best option is to save yourself and avoid getting into debt. But if that’s not possible, check out some of the methods available to help you out when you’re in a rush.
Each option has its own advantages and disadvantages, so make sure you consider your options carefully and understand the terms before committing.
1. Personal loan
Designed for personal expenses, there are both secured (collateralized) and unsecured personal loans available from banks and other lending institutions. The better your credit score, the better the interest rate you are likely to qualify for. You can use a personal loan calculator to see what your monthly payments would be and the total cost of your loan over time based on the amount you need and the interest loan you qualify for. Make sure you understand the difference between payday loans and personal loans (here is a quick explanation).
2. Advance by credit card
Most credit cards offer cash advances through ATMs, bank withdrawals, or checks that work like short-term loans. You’ll likely be charged transaction fees and the interest rate will likely be higher than many of your other options, but a credit card advance can be a quick way to cover an expense when billing isn’t. Not possible. The smallest limit on your card is your cash advance limit, so first check your cardholder agreement to see if it covers your needs, and be aware that your cash advance APR is likely higher than the usual APR of your card.
3. Retirement account loan
If you’d rather use your own money to help fund your emergency, consider taking out a loan with the money you’ve invested in your 401 (k) or IRA. Interest rates are generally low and it won’t impact your credit score, but you might have to pay off this loan within a certain amount of time or face penalties. You should avoid this method if you are in danger of losing your job anytime soon. Typically, you must repay the loan in full if you quit your job, otherwise the loan will be considered an early withdrawal.
The added caveat here is that you should always be careful about borrowing for your future – retirement funds generally shouldn’t be used as emergency funds, but sometimes life goes by and you have nowhere to go. .
4. Peer-to-peer loan
Several P2P sites allow you to obtain a personal loan from foreigners interested in lending you as a source of investment. Interest rates, like with many loans, are based on your credit score and can make a big difference in the deal you make. You may need to provide recent pay stubs to prove your income and risk late fees and credit strokes if you miss the payroll schedule. You can verify your credit scores for free on Credit.com before you apply for any of these loans so that you can see where you stand.
5. Home equity loan or line of credit
You can also finance large expenses by using your home as collateral. You risk foreclosure if you don’t repay the loan, so it’s important to consider all the possibilities before signing. Interest rates are generally low and easy to obtain (because they are backed by the value of your home). They work like a second type of mortgage as long as you already have some equity. These are complex financial products, so make sure you really understand how a home equity line of credit works.
When you need the cash now, it can be intimidating to take more time to consider your options. It is important not to rush to make a choice and consider the pros and cons of each option. It’s a good idea to take the time you need to get emergency cash in the best and most manageable way for your specific financial situation.