If you're trying to save money for a rainy-day fund (as you should), it can be particularly frustrating when you experience unanticipated expenses that keep driving you more in dept. If your credit cards are over-used, or the amount you owe is simply too much to charge, it may be time to consider other options. If getting a loan from a standard bank is not feasible or desirable to you, here are some good alternatives to consider, as well as some not-so-good alternatives to avoid.
Loans through a Local Credit Union—Credit Union loans have a nominal annual fee, and low interest rate. And what’s better, unlike payday loans, credit unions report to credit bureaus—so each on-time payment can improve your credit history.
Cash Advance(s) through Your Employer—Employers sometimes assist their employees by providing payroll cash advances or paycheck advances. This is usually a one-time-only deal (with many employers limiting the number of these types of loans to one every six months). It’s best to check with your payroll administrator to determine whether they furnish these loans, and whether your situation qualifies.
Military Loans—Military personal loans have some unique characteristics which make them different from other ordinary personal loans. Typically, the interest rate is lower than that of a conventional loan, and the repayment terms may be more forgiving. For example, monthly payments tend to be smaller, and repayments may be suspended without penalty during situations such as active duty deployments or periods of disability. Anyone considering this option should seek out these loans from a lending institution on a military base (like a credit union, etc.), as predatory lending practices are incredibly common near military bases.
Peer to Peer Lending—Peer to peer lending allows you to borrow money from strangers via established lending networks. These loans have much better terms than loans offered through banks. In order to get the best loan, your credit needs to be decent.
Personal Loans through Family Members—Forbes Magazine recently touted the advantages of borrowing and lending amongst family members. Like peer to peer lending, familial loans tend to be great deals for both the borrower and the lender. The borrower can negotiate a reasonable loan, with zero service fees, a flexible repayment schedule, and a low interest rate (generally 6-10% of the loan amount). However, you should only borrow money from family members if you are sure you can repay them. Family relationships are more difficult to repair than shoddy finances, so proceed with caution.
Payday Loan—Amounts usually range from $50 to $1500, with the normal loan size falling somewhere between $300 to $400. Interest charges on payday loans often range between 10% and 20% of the amount of the loan. This may seem similar to a credit card interest rate, but not when you consider that a credit card's interest is spread over a full year. The real monthly finance charges on your credit card is closer to 1-2%. With payday loans, you'll be paying 10-20% for each short-term loan. This could really add up, especially if you don’t repay the loan right away.
It bears noting that you should not get a loan simply to prolong an unsustainable lifestyle. As well, borrowing money to pay off previously-borrowed money is not a long-term solution, and can easily be abused. Consider the circumstances that are contributing to your financial situation: are they temporary or permanent? If they are permanent, consider seeking debt counseling, debt consolidation, or even perhaps bankruptcy as a last resort. If the problems creating a shortage of money are temporary, try to negotiate with current creditors to reduce payment amounts in the short-term, until you meet your other financial obligations.