Emergency Loans: Getting Cash for Rent and Other Expense
You never know when an emergency might come up and you are unable to work or do not have a job. Do you know what to do after a car accident? If you were laid up and were unemployed, who would you call to make sure that you and your family were taken care of and you had enough money for your day-to-day expenses, not to mention your rent payments. Luckily, there are several types of loans that you are able to get to help you cover these unexpected costs.
If you have relatively good or marginal credit, chances are you will be able to get a personal loan from a lending institution or bank. Keep in mind, these loans do not include payday loans. In a personal loan, a bank will give you the money that you need in a lump sum in return for money loan payments with interest. You will generally be able to get a personal loan for amounts between $2,000 and $35,000 from most institutions, depending on your needs. The interest rates on these loans, however, vary drastically.
You can get either a secured (collateralized) loan or unsecured loan. A secured loan is any loan that is backed by some type of collateral. This can be anything from your personal property to real property. In the event that you default on your loan and are no longer able to make payments, the bank or lending institution will come and seize your property to sell and cover the rest of the loan. Secured loans will generally offer better interest rates, since the bank will get something more if you default.
Unsecured loans are not backed by anything other than the cash that you are paying each month. These loans will require you to make larger interest payments, and sometimes there will be a limit on how much you are able to take out since there is more risk for the lending institution.
Retirement Account Loans
There is also the option for you to take out a loan against your current retirement account. Keep in mind that this is not a withdrawal from your retirement account. Withdrawals do not have to be paid back and they will generally be taxed, but they will also reduce the balance of your account. With a loan, you are given the money from your account, pay interest on it, and then pay the money back when you can. Your balance will not change.
These loans can be good if there are no other options for you and you know for sure that you will be able to pay back. Generally, there are very few financial planners that will tell you to look at this option first. For one thing, if you fail to pay back your loan it will be treated as a withdrawal, and ten percent will be added to your tax bill as an early distribution penalty. Also, you are being taxed twice on any interest that you pay on your loan; once when you earn the money and then again when you withdraw at retirement. Generally, the additions to your retirement account are tax free.
There are some good things about retirement account loans, however. One of the main ones is that you are going to be paying a much lower interest rate than if you were to take out a personal loan or credit card advance.
Home Equity Loan or Line of Credit
Home equity loans are becoming more popular every year. These are loans that are taken out from banks or other lending institutions that use the equity of your home as collateral. The equity in your home is essentially the value of your home as it was appraised, less the amount of debt you have on your home. This is essentially how much of your home you actually own. When you take out a home equity loan, you are pretty much taking out a second mortgage, because the amount of equity that you have in the home will decrease with this loan.
There are also home equity lines of credit. These lines of credit are also collateralized against the equity in your home, but unlike a home equity loan, in which you just get one lump sum and have to pay it back, you have the option to take out a loan for smaller amounts when you choose to on a revolving basis.
Home equity loans will generally have a shorter life than your regular mortgage, and you cannot take out one of these loans unless you actually have equity in your home. You also have to consider that, while the interest rates are lower on these loans than with some other types of loans, there will be more upfront fees. You will have to pay for appraiser fees, title fees, closing fees, membership fees, and the general loan origination fees.
These loans are loans that you can take out from financial institutions that use the title on your car as collateral. Again, this means that if you do not pay back your loan for some reason, the bank or financial institution will repossess your vehicle as payment on the loan.
When it comes to the cost of a title loan, however, they may not seem like a good idea if you are looking for cheap money for a long period of time. The average life of a title loan is about 30 days, and the interest rates on these loans can be anywhere from 100 to 300 percent. This means that if you take out $1,000 against your car and you have a 300 percent annual percentage yield, you will end up paying back about $250 in interest just to have that loan for one month.
One of the great things about these loans is that you are able to take out about 25 percent of your car’s value, and you are able to do it fast. These title loans do not often require a long application process, and you can even get title loans without a job or good credit. Because the title of the car is the collateral, the financial institution will be covered if you default on your loan. It is also good for the borrower because with the low level of inquiry about your credit history and the ability to get these loans for small amounts fast, you really do not have to worry about being turned away.
Credit Card Advances
Another type of loan that not many people take advantage of is a credit card advance, or cash advance. If you have a credit card, you may have always noticed on your statements that you have two limits. One of the limits is your credit limit, which is just the amount of credit that you are able to use on the card and then pay back on a monthly basis (your basic credit card limit). The other is the amount in cash advances that you are able to take out with your card. This limit will generally be lower than your credit limit, but it will generally be great if you are in a bind and need cash.
When you take out a cash advance from your credit card, there are a few things that you should know. Unlike your credit line, where you are not charged interest until after you fail to pay for a month, you will automatically be charged interest on a cash advance. That interest rate is also likely to be higher than your regular credit APR as well. It is important to pay this amount back as fast as you can to avoid having to pay large amounts of interest.
You should also be aware of any other fees that are included when getting a cash advance from your credit card. You will often be charged a higher APR than your regular credit APR, but you may also be paying a set dollar amount per advance as well. For example, you might have to pay $5 per cash advance, plus 20 percent interest on the amount advanced. There are often these interest percentages plus nominal amounts (which you will be charged no matter how much you take out) that you should be aware of.
Getting money when you are in a financial bind can be tough. If you do not have a job and are faced with any situation in which you cannot work, it is important to get the money that you need for your regular day-to-day expenses and rent payments. By getting a personal loan, home equity loan, or retirement account loan, you can work with what you have to get the money you need from a bank. If those options fail, you can also collateralize your vehicle to get a title loan for a short period of time. Credit card advances are also a great way to get quick cash when you are in a bind. No matter what your situation is, you will always be able to get the cash you need quickly.