Have you been hit by a surprising expense; your car bit the big one and needs a major repair or you need to buy a new one, or your water heater blew and it needs to be replaced, perhaps? Have you fallen on hard financial times; maybe you’ve lost your job or you’ve been forced to take a pay cut? Do you need to take an unexpected trip; a member of your family has fallen ill or there’s another emergency far from home that you need to attend to?
Whatever the reason, if you need extra cash and you don’t know how to get it, you’re probably feeling panicked and overwhelmed. While it would be great it if you had some savings to fall back on, like millions of other people, you just don’t; plus, there’s little you can do to save up when you need money now.
So, what then, are your options when you’re in a financial emergency and need to get cash in your hand now? Your best bet (other than calling a well-off relative who you have a great relationship, if you’re lucky enough to have one): take out a personal loan.
Keep on reading to learn more about personal loans and their alternatives so you can get the cash you need when you’re in a financial bind.
The most conventional way to secure extra money is by taking out a personal loan. Personal loans are backed by third-party lenders, such as banks, credit unions, or even online lenders. The money you borrow is paid back in installments over a predetermined period of time (two, three, or even up to seven years, for example). The payments are fixed, and they include interest.
In order to secure a personal loan, you’ll need to meet certain qualifications. Those qualifications will also determine the amount that you can borrow, as well as the interest rate you are charged. To determine your eligibility, lenders will assess the following:
- Credit score. Your credit score is top on the list of qualifications that you’ll need to meet in order to secure a personal loan. The better your score, the more likely you’ll qualify; and, the more you’ll be able to borrow and the better your interest rate will be. If you have poor credit, however, the amount you can borrow will be limited, and you’ll likely be charged a higher interest rate; that is, if you can secure a personal loan at all.
- Credit history. In addition to your credit score, lenders will assess your credit history, as it lets them know how “good” you are at managing your debt. Your credit history highlights the amount of money you’ve borrowed in the past, as well as how you’ve handled paying that money back. If you’ve borrowed a lot of cash and you haven’t paid it back responsibly, you may not qualify for a personal loan.
- Debt-to-income ratio. Your debt to income ratio refers to the amount of money you make compared to the amount of debt you carry; in other words, how much of your income goes toward your debt. The lower your debt-to-income ratio, the more likely you’ll be approved for a loan.
If you’re approved for a personal loan, the interest and how long you’ll have to pay it back will determine the payments you’ll need to make (which are usually made in monthly installments). These details will be discussed by your lender. Upon approval, the amount of time it takes to get the cash varies from lender to lender; it can take a day or two, or it may take a week or longer.
Alternatives to Personal Loans
Don’t meet the qualifications to secure a personal loan? That doesn’t mean you’re out of luck. There are several alternatives to conventional loans.
When you need fast cash, a short-term loan may be an option. As the name suggests, these loans are paid back in a short period of time; usually within a year or less. Short-term loans are different from traditional personal loans in that they term is shorter (traditional loans are paid back over a period of a few years), the amount you can borrow is usually lower, and the interest rate is usually higher.
Another option that may be able to help you out of a financial bind is a payday loan. These loans are also short-term, but the term is usually even shorter; additionally, the amount you can borrow is lower and the interest rate is even higher. Typically, with a payday loan, the money you borrow needs to be repaid with your next paycheck. Usually, the lender will have access to your bank account and the money you owe will be withdrawn when your next paycheck is deposited. A steady income rather than your credit are considered when determining eligibility. As long as you have a reliable source of income, you’ll likely be approved, and the money is usually deposited into your account almost instantly.
Installment loans, as the name suggests, are loans that need to be paid back in installments. Conventional personal loans are considered installment loans; however, instead of borrowing the money from a traditional lender, such as a bank or a credit union, the money is usually borrowed from an online lender. Another way installment loans and personal loans differ is the requirements for qualification; your credit won’t be as heavily weighed. However, like other types of short-term loans, the amount you can borrow is limited and the interest rate is higher; the amount of time you’ll have to pay back the loan is usually shorter, too.
When to Consider Alternatives to Personal Loans
If you need cash fast and you have bad credit, a short-term, payday, or installment loan may be an option to consider. Typically, as long as you have access to a reliable source of income, you’ll be approved for these types of loans. Additionally, the money is usually available within a very short period of time. However, do note that you can only borrow a small amount of money and the interest rates are usually very high. These factors aside, if you’re in a financial crisis and you can pay the money back in a timely manner, these personal loan alternatives may be a viable option.