What Are Different Ways To Borrow Money Now?
Posted on January 4, 2021 in Loans
Sooner or later every adult is going to need more money than they have in their bank account. Maybe for higher education, a new vehicle, or home, or maybe for a vacation or dream wedding.
Whatever the case may be, borrowing money can be quite a stressful endeavor especially considering just how many types of loan options there are available today.
Choosing the right loan to fit the exact detail of your situation can take a little time but it is very important you do not enter into a situation that will hurt your finances and leave you in worse shape in the future.
Risky Loans That Get Money Instantly
These types of loans will get you the money in the shortest amount of time. As opposed to taking days or weeks to go from application to withdraw, these loans can take a few hours or even less depending on which type. However, because they are designed to be fast loans for the most desperate, the terms and conditions can be predatory so it is very important to read over and understand the exact details before accepting any funding.
Credit Card Cash Advance
When a person uses their credit card to buy a good or service, they are borrowing money using a line of credit that they repay at a later date. The company will charge an interest rate once that payment becomes due usually in a monthly cycle.
A credit card cash advance is similar to this process but with some key differences. With this loan type the borrower is using the available balance on the credit card maximum limit to withdraw cash instead of using the card for the goods or service being purchased.
One of the details to keep in mind when considering this option is that the interest rate starts immediately upon withdrawal, instead of waiting until the monthly payment comes due, and there is usually a fee of around 3% to 5% added in. This loan is safer than some of the others on this list but also depends on the credit card company as not all have the same policies for cash advances.
This style of loan is generally for a small amount, usually $500 or less, that is meant to be repaid with the next incoming paycheck. Typically, credit is never brought up, and with just proof of income from a job and a bank account the loan is almost sure to be granted.
This option is probably the fastest one, and once at the servicer, the process should only take a matter of minutes from applying to getting cash in hand.
However, the interest rates and fees for such a loan can be extraordinarily severe (sometimes as high as 400%), and oftentimes a borrower will end up paying more in fees than they originally borrowed. Additionally, failure to repay the loan on time could result in the ensuing paycheck being seized as collateral. You don’t want to be asking how to block payday loans from debiting your account.
As a result of all of these concerns, this type of loan should only be used for the most extreme cases and should be considered a last resort.
Auto Title Loan
Anyone that owns an automobile and is in possession of the vehicle’s title and has the ability to take out an auto title loan. A standard auto title loan is usually between 25% and 50% of the vehicle’s value and will end up somewhere in the range of $100 to $5,500.
This loan can be just as speedy as a payday loan but has the added benefit of a longer repayment period which lasts about two to four weeks. The interest rates here can also be quite high as they are usually in the triple digits of percentages. The auto title will be handed over to the lender when the money is accepted, and if the total payment, along with the interest and fees, is not made, then the lender can repossess the vehicle from the borrower.
This option is another quick way to get cash but also a dangerous gamble that should be placed low on the list.
Pawn Shop Loan
This loan works similarly to the auto title loan only it does not require a vehicle but any random item in the possession of someone seeking a loan. Pawn shop loans require no credit checks and are just as quick as payday loans or auto title loans.
However, they are usually for smaller amounts of money. Pawn shop loans are usually for around $150 or so.
The way it works is a customer brings in an item and the pawn shop will give a percentage of the value of the item generally around 25% to 50%. The terms are agreed as far as interest and repayment time and the money is handed over. Once the debt is repaid along with whatever interest and fees were also agreed upon the item is returned.
However, the pawn shop will retain legal ownership of the item if the loan is not repaid in the agreed amount of time and can sell it for whatever amount of money they would choose.
Safer Loans That May Take Some Time To Actually Receive Funds
These loans will require a little patience and generally, good credit scores, too. If time is the most important factor then these may not be the best option, but they should be considered as they are generally much safer than the other loans listed above.
Personal Loan From Bank or Credit Union
This style of loan is probably the first thing that comes to mind when seeing the word: loan. Going to a bank or credit union and talking with a person called a loan underwriter who will evaluate the loan application and decide whether to accept or deny. These loans are typically worth a few thousand dollars but details can be dictated based on credit scores.
What makes these loans preferable to some of the other faster alternatives is they are considered unsecured. This means nothing will be seized if payments are not made. Another benefit is the loan will be given a term of usually 24 to 72 months, making repayment a longer but easier process. As a result of the loan taking so long to be repaid, the interest rate will be much lower and very often in the high single digits to low double digits of percentages.
While it would take a longer time to apply and receive the funds and then to repay the loan, this option is much less risky than some of the faster short term loans discussed earlier.
Home Equity Loan
Anyone that owns their home and has been paying a mortgage has equity in said home. Equity is the value of the house minus the remaining balance of the mortgage. For example, a home valued at $300,000 with a mortgage of $200,000 would have an equity of $100,000 that could be borrowed upon and repaid over years or sometimes even decades.
This loan would be a good idea if large quantities of money are needed, but it can basically wash away years of mortgage payments so consider this option only in the most desperate of times. Note that the home itself would be offered as collateral so failure to pay could result in forfeiting the home.
Most people that are employed have some version of a retirement fund, with the most common being a 401(k) plan. With a plan like this the owner can borrow up to half of the account value, with the interest being set by the employer and put back into the 401(k) when repaid.
These loans usually last for around five years and are not reported to credit bureaus, so scores should not be impacted or required to take the loan out. Failure to repay the loan however can result in taxes being charged on the amount and early withdrawal fees. If the loan is not repaid and the borrower leaves the job they may face a tax penalty as well.
The Takeaway: There are several different ways to borrow money through loans, and they each come with varying degrees of speed and risk. The easier and faster ones come with the highest risks while the longer term and more difficult ones are generally safer for your personal finances.
There are many factors to consider when attempting to borrow money, and every situation is different. For larger amounts it will take longer to obtain and pay off and for smaller amounts it can be a quick transaction paid off in no time.
Ultimately the most important thing is not agreeing to terms that cannot be met. The consequences can end up being pretty devastating depending on the style of loan being accepted so it’s critical to read the fine print before agreeing to anything.
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