Personal loans can be an affordable way to borrow. But before you apply, it might pay off to try and access money elsewhere.
When you need money in a pinch, a personal loan can be a good option. You will pay interest on a personal loan, but the amount can be paltry compared to what you would pay on a credit card balance. And during the pandemic, you may even be eligible for a coronavirus hardship loan. But before you go out and borrow with a personal loan, you might want to consider these sources of cash instead.
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1. Your emergency fund
Some people are reluctant to dip into their emergency savings because it means losing some or all of their safety net. But the whole point of having an emergency fund is for emergencies where you need money your paycheck can’t cover (or when you don’t have a paycheck at all). As such, you are usually better off plundering your savings. before you go out and borrow money elsewhere. This way you avoid accumulating interest.
2. The equity in your home
The equity in your home is the part of your home that you own in full. For example, if your house could sell for $ 300,000 today and you owe $ 150,000 on your mortgage, you would have $ 150,000 in equity. And there are ways to harness that equity when the need for cash arises.
Specifically, you can take out a home equity loan or a home equity line of credit (HELOC). With the first, you borrow a lump sum that you repay in installments, just like a personal loan. With the latter, you have access to a line of credit that you can draw on for a predefined period of time (typically five to 10 years).
The interest rate you will pay on a home equity loan or HELOC may be lower than the rate you will pay on a personal loan. Plus, if your credit score isn’t good, a home equity loan or HELOC can be much easier to obtain. The reason? Your home serves as collateral for your loan.
Ascent’s selection of the best personal loans
Personal loans, on the other hand, are unsecured, so you will usually need better credit to get a good rate. That being said, if you use your home as collateral and fall behind on your payments, you risk losing your home.
3. Your family
Not everyone has family members with abundant financial resources. But if you have a close family member – a sibling, parent, or grandparent – who is in a strong financial position, you may want to apply for a loan rather than going to a loan institution. credit.
A family member may agree to lend you money without interest, which will make it much easier to repay. Also, if you only need a small amount of money and you don’t qualify for a coronavirus hardship loan, you might have trouble with a personal loan. These loans generally impose borrowing minimums. If you’re missing $ 500 to pay your bills, for example, requesting a loan from a family member may be a more reasonable solution. If you are borrowing from a family member, be sure to repay the money as agreed. You don’t want to hurt your relationship with someone who has tried to help you.
When you’re in trouble, a personal loan can be a good way to borrow. If you stick to your monthly payments, you won’t hurt your credit score like you would by carrying credit card debt. But before taking out a personal loan, it pays to explore the options above. They could all be an easier or cheaper way to access cash when you need it.