It happens to the best of us. You’re cruising along just fine when all of a sudden, an unexpected expense comes out of nowhere. You don’t have any cash tucked away to deal with it so now you need money and you need it in a hurry. The question is, where do you turn to find it?
There are a number of places you can look to for a quick loan but the cost of borrowing may be higher with some than others. If you’re in a financial bind, here’s the rundown on five ways you can raise the funds you need when time is of the essence.
1. Credit card cash advance
If you’ve got a credit card and you have available credit, one of the easiest ways to source cash is by taking an advance against your credit line. Getting a cash advance from your credit card is as easy as hitting the ATM and you can get the money the same day if you need it that fast. There’s no credit check involved but there are some drawbacks to keep in mind.
First, your credit card company is most likely going to charge you a fee for this convenience. The fee may be anywhere from 3 to 5 percent of the advance amount, meaning you’ll have that much more to pay back. Second, the annual percentage rate (APR) for cash advances is typically much higher than your regular APR for purchases. Since there’s no grace period for cash advances, the interest starts accruing right away. The longer it takes you to pay the advance back, the more it’s going to cost you in the long run.
2. Online personal loan
Getting a personal loan from an online lender might make sense if you need to borrow more than you can get through a cash advance and you don’t mind waiting a bit longer for the money. It’s possible to borrow up to $40,000 and loans are typically funded within 1 to 3 business days after approval. Loan proceeds can be deposited right into your bank account.
The one thing to keep in mind is that your APR with an online loan hinges on your credit score. With some lenders, rates can go as high as 36 percent so if you don’t have a great score, you could end up paying more in interest than you would for a cash advance. You also have to be mindful of whether the lender charges an origination fee, which could get expensive.
3. Payday, pawn shop and car title loans
Payday, pawn shop and car title loans are all types of subprime loans, meaning they’re designed for people whose credit scores aren’t good enough to qualify them for a loan through a bank or an online lender. Getting money is usually fast and easy. With a payday loan, for example, you just need to fill out the application and provide your pay stubs to qualify. In many cases, the lender does a soft versus hard credit pull so a bad credit score isn’t a barrier to approval.
The biggest drawback of these types of loans is that the fees and interest rates can be astronomical. According to the Consumer Financial Protection Bureau, a typical two-week payday loan with a $15 fee for every $100 borrowed has an equivalent APR of nearly 400 percent. Car title loans operate on a similar wavelength. The bottom line? While these kinds of loans can put cash in your hand in short order, you’re going to pay dearly for what you borrow. We do not recommend them.
4. Borrow from friends and family
Tapping your friends or relatives for a loan may not be ideal but there are some upsides. A friend or family member probably isn’t going to ask for a credit check and they may be more flexible where the repayment terms are concerned. They may or may not charge you interest but even if they do, it’s likely to be much lower than what you’d pay for any of the other funding options outlined so far.
The main pitfall you have to watch out for is letting the loan become a source of friction between the two of you. If you miss a payment or the person who lent you the money thinks you’re being too spendy, they may start to resent making the loan. Drafting up a contract that spells out the terms of the loan can keep your relationship from being derailed by your temporary financial blip.
5. Sell something
If you’ve got something of value lying around that you’re not using, selling it off is yet another way to drum up some cash. While you could sell on eBay, there’s usually some wait time involved before you can receive the proceeds of a sale. Posting on Craigslist or in a local bargains group on Facebook may be the better option if you need the money right away.
When posting items, try to avoid letting buyers know you’re desperate for cash. If they think you’re willing to take less than what you’re asking just to unload the item, they may try to undercut you on the price. Decide ahead of time what your absolute minimum is for making a deal and stick to it.
Short-term loans aren’t a substitute for an emergency fund
These five options can keep you afloat when a financial rainy day comes along but the best defense you can have against stormy weather is a fully-funded emergency fund. Having three to six months’ worth of expenses set aside in a dedicated savings account means you won’t be scrambling to borrow when life tries to throw your budget out of whack. If you can’t save the whole amount right away, start with regular contributions of $25 or $50 each payday. If you’re saving the same amount consistently, you’ll be well on your way to a decent cash cushion before you know it.
Have you ever had a surprise expense ruin your day? What did you do?