Financial emergencies are a part of day-to-day life, and anyone can experience them, but the task of figuring out the best lender can be challenging in this situation. There are many aspects one needs to consider while selecting the right lender. For instance, whether you should ask a friend, a family member, or go to a financial institution.
While dealing with an urgent financial situation, it is difficult to wait for weeks to receive funds from a bank or a similar lender. This time-sensitive situation of borrowing money can jeopardize your financial future. It is essential to gather all the information on each of the different options available so that you can choose wisely.
Let’s look at the six different borrowing options and their pros and cons to help you decide better.
Is a cash advance from a credit card the answer?
Using your credit card to borrow cash from the nearest ATM may seem like the most convenient and fastest option because you already have the card and don’t need to fill out an application or go through a credit check to make the withdrawal.
Taking a cash advance on your credit card simply means you are taking a very expensive short-term loan. A few card issuers charge a fee for cash advance withdrawals along with a high-interest rate. Furthermore, most credit cards don’t offer a cooling-off period for cash advances, which means that the interest charges start the moment you withdraw cash.
Are the bank loan blues worth it?
Getting a personal loan from a bank may seem like a reasonable option because a few banks offer perks such as no loan origination fee. An origination fee usually ranges between 1% and 8%. Lenders say that it covers the administrative fees of processing your application and paying you the money.
For borrowers with excellent credit, banks tend to offer loans at low-interest rates and easy repayment plans. However, this is not the same for borrowers with low credit. They may still be required to provide collateral even if they were to be approved.
All in all, banks are not a viable choice when you need money immediately due to a financial crisis since they involve lengthy and time-consuming formalities and processes.
Are pawnshops problematic or problem-solvers?
Borrowing money from pawn shops is much different than borrowing money from traditional sources. There’s no credit check, no applications to fill, or any paperwork.
One would simply go to a pawn shop and temporarily forfeit a personal possession as collateral in exchange for cash from the pawnbroker, generally 25-60% of the item’s retail value. The loan must be repaid in full within 30-60 days, or borrowers lose their possessions permanently.
Also read: Why You Should Save Money?
Can payday loans come to your rescue?
A type of short-term loan, payday loans can be applied online or at a payday loan storefront. These typically amount to $500 or less.
The sad truth about payday loans is that lenders capitalize on people who can’t get approved for loans elsewhere and are desperate to borrow money.
Payday loans end up costing borrowers a lot more than they bargained for because payday lenders demand payment in full, charge high-interest rates, and have short repayment periods.
Payday loans must be repaid by the time borrowers receive their next paycheck. For anyone getting paid every week, their due date to repay the loan will be in less than ten days.
Some borrowers can’t pay the loan on time, which is when serious consequences begin. They get trapped in a vicious cycle of rollovers and partial payments, keeping them in debt for months and years at times.
How about conveniently borrowing from online lenders?
This digital age connects online borrowers with online lenders no matter where they are. They don’t need to leave the privacy of their homes to borrow money. With some research on the internet, borrowers can find legitimate online lenders.
They are a great alternative to the traditional methods of borrowing money. They don’t come with the costs of maintaining physical branches and are often dedicated to providing a user-friendly experience to online borrowers.
Many lending brokers make it possible for borrowers to receive quick funds in under two days once approved.
If you are not familiar with an online lenders, do more research on them.
The downside of these loans is that they are often out of reach for borrowers with poor credit. Moreover, some borrowers may not feel comfortable sharing personal and financial information with third parties.
Peer-to-peer lending works for many, will it for you?
Peer-to-peer lending is a crowd-funding model where applicants must first undergo screening, eliminating anyone with a FICO score below the mid-600 range.
Those who clear the first screening process must post a detailed profile with their personal and financial information on the peer-to-peer website. Potential lenders get the option of funding or not funding a particular borrower’s request.
Peer-to-peer lending does not give any guarantee to anyone looking to borrow money. Loans get transferred only when the request of borrowers gets fully funded.
Additionally, peer-to-peer websites can be intrusive since they need borrowers to keep their profile semi-public for observation by the general public.
Although it is always better to cut spending than to borrow, sometimes life can be unpredictable. You should always take time to research and determine your options well before looking to borrow money online. Ask yourself the following questions first.
- Why do you need the loan money, and which type of loan suits you the best?
- What is the interest rate?
- Are there are any additional fees associated with the loan?
- For how long do you have to pay back the loan?
- What happens if you are unable to pay back the loan?
- Will your credit score be affected if the creditor performs a hard credit check?