At times you may have saved some money in your emergency fund, but are you sure it is going to be enough in case of a tragedy? Where can you go when you need a cash loan?
Life is unpredictable and full of surprises; it is even difficult to save up for all of them. There are quite a number of options that can come in handy when you need a cash loan. However, not all these choices are the best. When you find yourself in a bit of a pickle, here are some of the best options for you to consider:
Family and Friends
It can be awkward to borrow cash loan from friends or family, but it is the safest way to borrow, financially at least. You may want to make everyone feel comfortable about the loan; therefore, you should draw repayment terms that will have everyone accept.
What if you need a cash loan urgently?
Other options for acquiring loans instantly can attract high interest rates – thereby, paying a lot more in the long run. Although if you're able to pay back within a short span of time you wont be charged much interest overall but will still need to factor in the loan setup fees charged for services rendered. Bear in mind that if you're unable to keep up with the contracted payments then both interest and penalty fees will be applied - which can quickly land you in a deeper hole.
Unsecured bank loans
Banks and credit unions are able to offer personal loans that are unsecured, but a primary prerequisite is a good credit score in order to qualify for bank loans. For instance, in 2016 you may qualify for a loan that charges between about 12% to 20% annual interest. This is relatively affordable, but may take from a few days to over a week to organise and requires you to have a fairly good credit rating. There will likely be a fairly chunky draw-down fee so these types of loans are best suited for larger amounts over $10,000 with loan terms spanning several months or years.
The risk: In the event that you will fail to pay on time then your credit rating will go down, which will make it harder and more expensive for you to obtain credit in the future.
Most credit cards will allow you to obtain cash advances directly from an ATM or by popping into your local bank branch. Interest will start accumulating the moment that you withdrawn the cash and interest rates are relatively high - generally over 20%.
The risks: The interest rate may be subject to an increase at any time, and it's easy to fall into the trap of depending on credit card debt while only making the minimum payments - meaning that you never pay back the loan and potentially incur the recurring interest of that debt for the rest of your life. Banks have a habit of being a bit sneaky and increasing your limit when it looks like you need it most - meaning that you get yourself into even more debt which can be a struggle to pay back.
A newer phenemenon in the personal finance space is the introduction of peer-to-peer lending sites. These website can help you get cash loans from other people who are willing to offer such loans to act as an investment. Generally the loans are pooled and split amoungst multiple lenders. P2P lenders often allow you to get loans even if your credit score is sub-optimal - i.e. if you're the sort of person that a bank will turn down.
Be prepared to pay a higer level of interest for P2P loans; even with a good credit rating you'll be looking at around 15% for an unsecured loan, and with a poor credit rating you may be charged well over 30% annual interest. There will be a loan draw-down fee added on top which means that it's generally better to apply for a larger loan with repayments spread over 2-3 years.
Another disadvantage of P2P loans is that it may take more than 1 week for your loan to be approved and cash deposited into your account.
The risk: Late payments will result in hefty fees and may cause your interest rate to be increased.
Usually quicker and more flexible than bank loans and P2P, finance companies can be a great place to turn when you need a cash loan fast. As long as you keep up with the regular payments, the slightly higher interest rates should be manageable. Due to the fixed term of these loans, the total cost is often less than borrowing the same amount of money from your credit card.
The risk: Be sure to read and understand your contract and make regular payments in order to avoid cumulative penalty fees.