Are you in need of a little extra money? Most of us can easily recall a time when we’ve felt stretched thin financially. Whether your car needs repairs or you’re having a hard time making this month’s rent, expenses can easily add up and surprise us.
Though this feeling can be disheartening, the good news is that there are many different types of loans that can help. Today, we’re taking a closer look at your options so you can understand the next step to take!
1. Personal Loans
A personal loan is considered a type of credit. Issued by your bank, credit union, or online lender, you can use this money to make a big purchase. You can also use it to cover multiple small expenses or even consolidate other, high-interest debts that are weighing you down.
Though your options will vary, most personal loans are offered as installment loans. This means that you will pay back the full balance, plus any interest accrued, over time. Depending on your terms, your repayment timeline may be a few months, or it could be years.
There are two types of personal loans to know. These include:
- Unsecured personal loans
- Secured personal loans
Secured personal loans are backed by collateral. This means that if you default on your payment terms, the lender can seize a specific asset as “payment”. These can range from your home to a savings account. Unsecured loans don’t require collateral, but your lender will usually look at your financial history to determine if you qualify.
A personal loan is preferred if you need a substantial amount of money that you don’t think you can pay off in a short amount of time. These may require a credit check, so be sure to ask your lender before you proceed.
A Note on Installment Loans
Personal loans are a type of installment loan. This means that you will pay the money back over a period of time, and each payment is considered an installment.
If you’re a homeowner and age 62 or older, consider alternative options, like reverse mortgage loans, to save yourself the headache of scheduling individual payments. With a reverse mortgage loan, you can borrow against the value of your home and receive the money in a few different ways. The balance becomes due if you sell your home, move away for good, or die.
2. Payday Loans
Payday loans can be a valuable option if you’re short on cash. However, it’s important to know that these particular types of loans often carry super high interest rates. These are short-term loans that can leave you owing more than you receive if you aren’t careful to pay them back on time.
The stipulation is that once you receive the loan, you will pay back the lender once you receive your next paycheck. The amount of money that you qualify to receive is usually based on your current income. Rather than making payments, you’ll usually be required to pay a payday loan back in one lump sum.
You may have heard these loans referred to as “cash advance loans” or “check advance” loans. Make sure you only borrow as much as you can confidently pay back the next time you get paid by your employer. These loans can help if you only need to borrow a small amount of money.
3. Credit Card Cash Advance
Also called a CC cash advance, this type of loan allows you to use your credit card to obtain a short-term loan at your local bank. You can also get one at most ATM machines.
What makes them different from simply making a withdrawal? A CC card cash advance loan must be paid back, and you’ll acquire some pretty heft interest rates, too. In fact, it might be easiest to think of this loan as “buying” money with your credit card.
It’s tempting to obtain a cash advance when you find yourself in a cash-only situation, and you’re stuck with just your card. However, it’s smart to resist in-the-moment temptations. What might seem like a minor expense at first could quickly snowball into a greater debt.
Rather than allowing you to use your full credit line as a cash advance, most credit card companies will only allow you to use a few hundred dollars or so. When you do so, you’ll also incur extra fees and ATM fees, as well as standard interest on the money. This new loan will essentially be tacked onto your credit card balance, so make sure you only borrow as much as you can pay back.
4. Title Loans
With title loans, borrowers are required to pledge the amount of their vehicle title as collateral. This can be the title for a car, truck, van, SUV, or any similar vehicle.
Usually, the loan amount will equal anywhere from 25% of the vehicle’s value to 50% of it. While it may seem straightforward, it’s important to know that most lenders will charge substantial fees for a title loan. Usually, these fees equal around 25% of the loan’s total value.
Most title loans are short term and carry 30-day repayment timelines. In this way, they’re similar to payday loans. Only use them if you need a small amount of cash as soon as possible, and you know that you’re in a position to repay the loan in full by the deadline.
5. Family Loans
It might not be ideal or even comfortable, but family loans can also help you out in a pinch. As their name implies, these are loans that you will secure from a close friend or family member.
You may consider a family loan if your credit score is too low to qualify you for a traditional bank-issued loan. These can be a smart option, but it’s important to turn to a family member who knows you well, understands your financial history, and is prepared to assist you on this journey.
Before exchanging any money, make sure to put all of the loan terms into writing. Create and sign a loan agreement, and make sure to include all of the main points, including:
- Interest terms
- Repayment timeline
- Late fees
- Consequences for missed or late payments
You can find many different templates online to help you draft this document. Make sure all parties sign it and obtain a copy for their records.
Learn More About These Types of Loans
It’s never fun to find that you’re strapped for cash. The types of loans detailed above can help when you need extra money to cover your expenses.
Remember to never borrow more than you can pay back, and make sure you’re clear on all of the loan terms before signing on the dotted line. Make sure the purchase is truly necessary before you proceed.
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