Many times, people get caught up in emergencies that demand cash. In similar situations, you are bound to make mistakes if you have not planned for it. These emergencies can be medical, accidents, job loss, etc. When you need to deal with any of these experiences, you may not have the required financial muscle to get you through.
However, there are some options you can turn to in times of such emergencies. The best of the strategies is to save money. This will help you to avoid going into debt. Often, we forget to save and when an emergency arises, we will have to go into debt. We now discuss some of the options at your disposal when in a fix.
Personal loans are usually designed for personal expenses. They are mainly offered by commercial banks and some lending institutions. These loans are either secured or unsecured. Secured loans are backed with collateral, which are assets used as security for the loan. However, most lenders do not demand collateral when giving you a personal loan. With a better credit score, you are likely to qualify for more flexible interest rates. This emphasizes the importance of maintaining an excellent credit history with a lender.
With poor credit scores, you are likely to get the loan at a higher interest rate. Depending on the interest you qualify for, you can use a personal loan calculator to get an estimate of your monthly payments even before receiving the loan. This will help you in planning your repayment schedule. Further, when going for this type of cheap loan, ensure that you have an understanding of the difference that exists between a personal loan and a payday loan. You will need to pay back promptly after handling the emergency, which will grant you another opportunity to borrow again when caught in a situation of a similar nature.
Credit card advance
Another option you can explore is a credit card advance. Normally, financial institutions issue credit cards to their customers. Having assigned their clients credit cards, most of these institutions will offer you the benefit of accessing a credit card advance through the bank’s ATM, bank withdrawals, and checks, depending on the financial institution’s and the client’s preference. Regardless of the means of disbursement, a credit advance is a short-term loan. Credit card advances are also subjected to costs before you receive them. Unlike other loan options, a credit card advance is charged a higher interest rate. Avoid taking them if you can because of the costs they incur.
Nevertheless, they are a fast and efficient way of getting cash for addressing your emergency when there are no alternative means. Check on your card’s lowest limit, which is the credit card advance that you qualify for. After you have dealt with your emergency, you must strive to repay the advance within the agreed time. Emergencies can arise at any time, and with a poor repayment history, your credit will be weakened. This may prevent you from acquiring a acquire credit advance when in need some other time.
Retirement account loan
You are most probably saving for your retirement. When an emergency arises, you will likely want to use your own money. You can take a loan from your retirement investment savings account. Usually, institutions providing such financial services charge very low interest on their members’ loans. Further, such loans have zero impact on your credit score. This makes them flexible and possibly suitable for you. However, they also have clearly spelled-out repayment periods. Failure to honor these stipulated periods attracts penalties.
If you are expecting to be terminated from your job shortly, you should avoid taking such loans. The loan will negatively impact your retirement benefits, as then it will be considered an early withdrawal. If you have an alternative source to borrow from, then you should avoid your retirement savings. Retirement funds are not emergency funds. Borrowing from the plan is like borrowing from your future. If you meet challenges in repayment, you will be eating into what should cushion you in retirement. Use these funds only if you are truly desperate.
In the rapidly digitized world, there are strangers offering personal loans to individuals like you on P2P sites. These lenders do this as a source of investment. Your credit score determines the interest rates at which the loan will be advanced to you. Usually, they demand recent pay stubs as proof of your income and ability to repay the loan advanced to you. If you happen to default on the loan, late fees and credit re-evaluation are the penalties imposed against you.
Checking your credit frequently will give you an idea of your credit standing. Unlike commercial banks, in peer lending, there will be no paperwork for you. P2P lending is digitized. This eliminates the need for meeting with a lender or representative. You need to be in a position to upload all the required documents onto the website. Peer to peer lenders also charges low interest. This can be attributed to the very strong competition that exists between such lending companies. However, it is also important to note that these loans also affect your credit status. Always make sure that you repay any type of loan on time.
Home equity loan or line of credit
In times of emergency, you can also obtain money by using your home as collateral. However, you should know that the moment you don’t pay back the loan, you will be facing a foreclosure. The main advantage of this loan, however, is that the interest rates are low. You can also easily qualify for the loan if you have collateral. These are complex in nature and have similarities with mortgages, so make sure that you understand well what you are getting into.
However, in times of emergency, it might be difficult to take your time to scrutinize through other available options. You should weigh the advantages and disadvantages of all the options at hand. This calls for planning ahead for emergencies in case they arise.