Each of us can go through some tough financial times, even with the best and most careful budgeting. Hazard, sickness or just bad luck can result in an urgent need for money. The first step is not to panic, but to stop and assess your options by acknowledging that this could happen to anyone.
In fact, your problem is much more common than you can imagine, as almost half of the US population has a hard time finding an average amount of money ($400-500) to cover urgent expenses. Of course, relatives and friends are the easy way out in such situations, usually because they rarely ask for interest, especially during hard times. If this is not an option or you want to keep intact your social relations and don’t bring money up, there are institutional options.
Apart from maxing your credit cards, you could think about a personal loan or getting a payday loan if the amount needed is not too high, but you are in a hurry and can’t go through a regular approval process.
Make sure, before you fill in any application that you know exactly how much money you need and are comfortable not only with the monthly installment but the originating fees and the interest for the entire estimated period. Is this an exceptional situation or are you trying hard to make ends meet due to other debts?
The safe option- personal loans
This is an excellent option if you are not in a hurry since the approval takes between a few days and a whole week. This product is great if you are looking to upgrade your home or take some courses to enhance your professional skills. Also, it’s best if you are looking for an amount over $2000, but no more than $35,000 usually, which you will repay over a few months or years.
The great thing about these products is that they don’t require any collateral, so you are not endangering your property. In the unfortunate case of a payment default, you will see the penalty on your FICO score as well as a small fee.
Depending on your previous lending history, the interest rate could be anything between 5-36%, in direct relation to your FICO score. If you are looking to improve your score while also using the loan, you could find useful the Prosper loan information and reviews, as they offer a special feature focused on finance management. Of course, depending on the circumstances, you could be better off with a credit card, which has an average APR of 16%.
Granting conditions are not too strict, but you will be required to provide proof of income, residence, a utility bill, and other bank statements. For solopreneurs or self-employed it could be a bit more difficult. Prepare, or ask your accountant to have on hand the evidence of the businesses’ continuity and profitability. The usual documents such as address and residence proofs are also required.
If you can’t wait for a personal loan, your credit cards are already maxed out, and you are looking for a quick fix at almost any price, a payday loan could help you. The range for these is inferior to personal loans, starting as low as $100 and going up to $3000, or lower.
The lender will ask no questions except if you are a citizen and over 18 years old and have a job and a bank account. They don’t care about your FICO score or utility bills, but the penalty is an interest rate that could go as high as 1000%, in the worst cases. Such an agreement could be considered a predatory loan, yet an APR of 25-300% is the norm for these products since they carry a high default risk for the lender.
The good news, if any, is that these loans don’t go in your credit history, so if you have a hard time paying them you won’t get additional penalties. A great tip is to negotiate and if you can’t repay it on the specified date. The danger is to get into a spiral of debt, borrowing at ever higher rates.
The illegal practices of predatory lenders have come to the attention of the Consumer Financial Protection Bureau (CFPB) who has issued a recent law project, forcing the lenders to evaluate the borrower’s ability to repay the loan while still retaining enough cash to live.
You should start by realistically assessing your needs and keep in mind the long-term goal of having a high FICO score which grants you access to quality financial products.
Therefore, you should only use payday loans as the final option to pay for last-minute and critical issues like a health problem or replacing a mandatory item, like an expensive car part. It should only be triggered by rare events that would have otherwise been covered by a savings fund. Under no circumstance let this become a way you pay your bills. Think of yourself as being too poor to afford such expensive money.
We recommend a personal loan as a more stable and reasonable solution or even apply for a new credit card. Some banks have introductory APRs of 0% for a few months, which can help you get back on track. The personal loan no only grants you access to a considerable amount of money that you can use in more areas of your life, but it also helps you repair or improve your credit score, offering the possibility of refinancing at a lower rate later.