Being in a tight spot financially is very stressful. Financial uncertainty is one of the leading causes of anxiety in adults. Some times we are in a position where we could really use a few extra bucks. If you have gone through this before, or are currently facing this situation, we are here to help. In this article, we will detail ways to borrow money fast. These tips can help you get out of a slump and back on your feet.
Take a Look at Your Finances
Before we jump into the ways to borrow money fast, answer one question. What is the reason you need to borrow money in the first place? Once you have an answer for this, it can help you avoid these situations in the first place. There are many reasons why you are in a cash crunch, but they can all be boiled down into a couple root causes.
The first one is a lack of a budget. Another budget related cause could be that you have a budget, you just are not sticking to it. Either way, you need to figure out how to get back on track. There are some budgeting mistakes that you may be falling to. Some of these mistakes include sweating the small stuff, setting and forgetting about your budget, as well as not expecting the unexected.
Another reason why you are in a position where you need to borrow money fast is because you do not have a handle on your debt. It is known that there are many benefits of a credit card. However, they can go from being your friend to your worst enemy very quickly. You may be tempted to spend a lot on your card, rack up a ton of debt, and get stuck making huge interest payments. Or maybe you purchased a new car after getting your first real job, not realizing all of the associated expenses.
Lastly, one reason why you need to borrow money fast is because you do not have an emergency fund. An emergency fund is an account that you have that you only touch in the case of an emergency. For instance, if you lose your job, you can use this fund to pay for your rent or groceries. Additionally, you can use these funds for health related emergencies or unexpected car repairs. Going through the process to build an emergency fund can help you avoid situations where you need to borrow money fast.
That being said, what are the ways that you can borrow money quickly if you are in a pinch?
Ask a Loved One
Although this may be the easiest way to get by when you are in a cash crunch, it can be the most difficult thing to do. If you need to borrow money fast, asking a loved one could be one avenue you pursue.
Before asking friends or family members to lend you some money, be sure you will be able to pay them back. You never want to take money from someone you love, knowing you will not be able to pay them back. This can ruin your friendship, and put strain on your family.
Another tip when asking money from a loved one is to be transparent. Tell them exactly what you need the money for. Paying back your bookie or wanting to go on a vacation are do not count. Also be sure to detail how and when you plan on paying them back.
Asking a loved one can be a great way to get some extra cash when you need it. Depending on the financial position of this loved one, they may decide to just gift you money instead of loaning it to you. You never know – sometimes friends and family can be very understanding.
Get a Loan
If you need to borrow money fast, one option is a loan. There are several different types of loans that you may be able to get. Here we cover several of them, but note there are more out there.
Fast Cash Loan
A fast cash loan is a loan that can get you cash when you need it in a very short period of time. There are some banks and lending institutions that can get you the cash same day or within 1-2 days. Many fast cash loan organizations do not require a credit check. So if you are one of the many people out there that could improve your credit score, this may be a good option.
However, if you have poor credit or have some derogatory checks on your credit report, you may have a hard time. Depending on your financial history, you may have to pay a high amount of interest on your fast cash loan. You may also not be approved for the dollar amount you need.
While getting cash fast is a benefit of this type of loan, there are some down sides. First, interest charged on the loan is usually high compared to other lending methods. This is true no matter how good your credit is. Also, due to the nature of the loan, you may not get as much as you need. If you need a loan with better terms and a bigger balance, plus have decent credit, you may want to look into these other types of loans.
Many banks and credit unions can give you a loan to help you through your financial hardship. This type of loan can be known as a hardship loan. These loans are usually unsecured – meaning you do not put up any collateral for the loan. If you opt for this type of loan, the bank or credit union will most likely run a credit report to check your financial standings.
The interest rates on these may be higher because you need to compensate the financial institution for their larger degree of risk. In the case you are unable to pay back the loan, the lender does not have access to the collateral. If this occurs, they would be out the unpaid balance plus any interest.
There are some benefits of this type of loan, though. First of all, because you are getting this type of loan from a more traditional lender, the terms will be better. This is different from the types of financial organizations that offer fast cash loans. The interest rate will be more competitive (based on your credit report), plus you can usually borrow a higher balance.
A secured loan is similar to an unsecured loan, however you have to put up some type of collateral. In this case, the collateral could be your home or your vehicle. By putting up collateral, you can usually get a better rate. You may also be able to borrow a larger amount of money depending on the type of collateral you put up. The amount you can borrow will be based on the value of the collateral, plus the amount of equity you have in it. Equity can represent your ownership stake in the underlying collateral.
For instance, if you own a $25,000 car, and have a car loan on the car for $5,000, and the car is currently worth $20,000, then you have a total of $15,000 worth of equity in it. The loan amount will then be based on this value. The same concept can be applied to your home.
In the worst case scenario, if you are unable to pay back the loan, the lender will take ownership of the collateral. They will then sell it off to make them whole and give you any sort of remaining balance.
Two of the most popular types of secured loans that can help you borrow money fast is a Home Equity Loan or a Home Equity Line of Credit. These are loans that use your home as collateral.
Before you apply for a loan and put up any sort of collateral, whether it be your car or house, be sure to understand the risks. If you do not think your financial situation will improve in the future, you may not be able to pay back your loan. This could result in a home foreclosure, or a repossession of your car.
Retirement Account Loan
Another type of loan that may be worth looking into is a loan from your retirement account. If you have a retirement account, the institution that it is with may let you borrow against it. You may be wondering why you have to take a loan out of your own retirement account in the first place, right? Well, retirement accounts like an IRA or 401(k) come with tax advantages. For instance, you may not have to pay income taxes on the money you deposit. Plus, there are withdrawal rules when it comes to taking distributions from these types of accounts. For instance, you may have to be over a certain age to start taking money out of this type of account. This is why you need to get a loan from it.
Borrowing from a retirement account like an IRA or a 401(k) can be beneficial. For instance, you are borrowing money from yourself and promising to pay it back. There is less risk of losing any collateral. Plus, the interest rates which the financial institution that manages your account puts on your loan may be more competitive then if you went to a traditional lender.
While there can be some benefits, there are also drawbacks. The first is that there will be fees associated with taking a 401(k) loan. The amount may be less than the fees associated with the loan origination process at a bank, it will still cost money. Second, and most important, if you take money out of a retirement account you lose all possibilities of gains from interest, dividends, or movements from the market.
Let us look at an example. Pretend you have $50,000 in a retirement account and borrow $25,000 from it. Not only do you have to pay that back with interest, but you are also losing out on making money from that money. Let us say you can get a 5% return in one year from that $25,000 staying in your account. That equates to $1,250 of lost income. Then, add in the amount of money you have to pay yourself back in interest on that balance, say 3%. If the term of the loan is only one year, the interest paid will be around $750. This means the total cost of this loan for that one year is $1,250 of lost investment income, plus $750 of interest expense which sums up to $2,000.
If you are under the withdrawal age, you may qualify for a 401(k) hardship withdrawal. This is when you can take funds out of your 401(k), pay taxes on them, and not have to pay them back.
Another way that you can borrow money fast is for asking for a paycheck advance. If you go to your manager or possibly your HR department, they may be able to pay you early. Although this will not help in the long run because you are just getting paid in advance, it can help you through your cash crunch.
By speaking to your HR department, they may be able to inform you of some employee benefits created to help employees in need of financial assistance.
Have some random things around your house or apartment that are relatively valuable? Are you in a cash crunch and need some extra money? Do you not want to sell these items because they have sentimental meaning to you? If this sounds like you, then you may want to think about pawning your item.
Pawning is a simple process. You take your item to a pawn shop, and they evaluate this item. They will then loan you some amount of money based on its value. If you do not pay back the loan within the set time frame, they get to keep this item for themselves. Pawning something is very similar to a secured loan with collateral. If you can’t pay up, they get to take it.
Going to a pawn store to pawn something can help you out in a pinch. Whether you want to pawn electronics, jewelry, or a watch, they will most likely be able to take it. Just make sure you go to a reputable pawn shop.
Tips to Borrow Money Fast – Summary
Having to borrow money fast due to a financial hardship is tough. If you find yourself in this position, be sure to ask yourself how you got there. This will help you avoid this situation in the future. That being said, if you are in a cash crunch and need to borrow money fast, these methods can work. Remember, if you need to borrow money fast then ask a family or friends, take out a loan, or ask for a paycheck advance. You can even possibly pawn some of your valuables, or take a hardship withdrawal out of your retirement account.
No matter what, stay positive. You can get through this difficult time.
[…] money out of your 401k is a great way to borrow money fast. However, taking money out of your retirement account is generally […]