Most people encounter a time in their life where they need to borrow money due to an unexpected and unavoidable expense. For instance, without warning a pipe bursts in your home or your car needs an alternator. Unfortunately, if either one of these scenarios ends up happening you won’t have the option of putting it off a week or two until you have funds available. When these types of emergencies come up it’s always best to explore all your options to make sure that your get the best rate and the lowest possible monthly payment.
Types of loans
There are many different types of loans available but it really comes down to two groups: secure and unsecured. A secured loan is one where a bank has collateral like a mortgage or a car payment. They are generally much easier to acquire since the bank has something to seize if you default. Personal loans, short term loans, credit cards and student loans are examples of unsecured loans. Since the bank has no recourse if you default these are generally much harder to get an approval on. There are also high-interest payday loans, but these should be your last option.
The amount you can afford
Though time is of the essence due to the urgent repair, it’s important to go through your budget to see the amount that you can afford to repay. Be realistic and add in every monthly expense. Then if you have an existing mortgage in good standing you could contact your bank and see if you can acquire a personal loan through them. Most times if you already have established credit, a good credit score and an acceptable debt to income ratio you should be able to get the loan. However, if your credit score is lower due to a few late or missed payments to other creditors you may end up not getting approved.
Other places to acquire credit
If your bank ends up denying you a personal loan, there are still other ways to get the money you need. If you have a credit card with available credit, while not the best choice, it will provide you with a way to make the necessary repair. Since the interest rate is much higher on a credit card, paying off the loan sooner versus later is the best approach. If you don’t have enough on your credit card you can apply online for a short-term arrangement through a company like Maxlend. These loans use less stringent standards, usually requiring only a steady job, a social security number and an active checking account. The repayment terms can range anywhere from 6 months to up to 2 years, allowing you to pay the loan off slowly.
There is still yet another option, and that is to borrow money from a family member or a friend. If someone is willing to loan you the money just make sure that you treat it in the same manner as you would any loan and commit to repaying it as agreed.
Setting up an emergency fund
In order to avoid a repeat of the same situation, you need to have funds set aside in a separate account that you use only for emergencies. If your budget is currently tight, start slow, adding just $10 or $20.00 a week. Before you know it, you’ll have plenty of money available and have peace of mind in knowing that you will have sufficient funds when something unexpected comes up next time. Even if nothing comes up within the year leave the monies in your emergency fund.
Making payments on time
If your credit score has suffered a setback, you can improve it by making every effort to pay your bills on time. Your credit score has many factors that determine the final number. Your debt to income ratio, payment history and available credit are all factors. Use your credit wisely and only use credit cards when you absolutely need to. Or, if you use them daily as a preference and for the added perks you receive from the company then pay the bill off each month.
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