While you may picture a perfect blueprint of how you hope your life should play out, unforeseen circumstances may leave your financial situation in disarray. A situation may arise where you need extra cash for different reasons. Before you borrow, you have to be certain that there are no other options available to you.
If you really need the cash and there is no option of saving, there are plenty of different ways to borrow money. Hence, I cannot stress enough the importance of comprehensive research of the approaches you desire to try out.
This post will thus, illustrate the different approaches that could prove useful in acquiring loans;
Traditional Bank Loans for American middle class are by far the most popular way that people prefer to borrow money. This is one of the faster ways in which one can get a loan. Although there are a couple of factors one has to put into consideration which includes:
- The amount of money you want to borrow
- Credit scores of the person in question.
Traditional banks are suitable if you have perfect or above average credit score and also if you desire to borrow large amounts of money. If you want a small loan you would be best served by looking elsewhere as this can be quite expensive.
2. Payday Loan
Another way to borrow money is Payday Loan which is basically a short-term borrowing method. This way differs from traditional bank loans in that people with bad credit can borrow money; however, they are charged very high interest making it the most expensive way of borrowing money.
With interest rates of up to 300%, it should be used only if there is no other way and the money is required urgently.
3. Credit card advances
This is a common way to help you patch up your financial situation. The credit card company will offer advances through either ATM access or issue a check. This way is suitable for short-term loans but it has its own risks similar to traditional bank loans. You will be charged penalties if you are late on the payment and the interest rate can also be raised. Late payments of this loan will greatly affect your credit ratings.
- Peer to peer lending
Online lending is the new trend the globe is buzzing about. Peer to peer lending while being one example of the new method in town has been quite popular and its rise has been off the charts. Companies like Lending Club and SOFI are focused on linking those in need of cash and “willing” lenders all through an online platform but you must avoid bad financial habits to make these plans successful .
The traditional banking ways are not involved here as people with bad credits can make use of the relatively new method. However, if your credit score is on the lower side there is no limit to what you can be charged to acquire loans. Where you might incur almost 30% more interest than when your credit score is perfect.
- Secured bank loans
Secured Bank Loans are another way in which you use your own property as collateral so as to borrow money. Home Equity Lines of Credit, Home equity loans as well as other loans secured by your other property like cars have a low interest compared to the other ways of borrowing.
Though, the risk associated with this type of borrowing method is immense as the interest rate is variable and it could jump making you lose your home or the property you had used as collateral.
- Credit unions
Credit unions are one of the more flexible ways to borrow money. All you have to do is register as a member and you can get access to lower rates than those of banks. With a good credit and membership, you can get unsecured loans guaranteed by only your signature. This can be a good solution if you need short-term cash.
- Family and Friends
While this approach seems the most instinctive one to get loans, it should be avoided unless you are squeezed to a corner with no other options. It’s also one of the most unpredictable means of acquiring loans.
There are no established constants on the payment details. And without rules to govern how you borrow from your family and friends, you should draw a legal document detailing the payment details and the consequences of failing to abide by the terms. Both parties should agree on the details of the document before signing.
Whether a particular way of borrowing is right for you is dependent on many factors. When your current situation is dire and borrowing loans in an inevitability, remember never rush to deals without prior understanding of how each approach will affect you.