Life is full of surprises! Even though most people aim to spend wisely, make savvy investments, and build long-term savings, sometimes unexpected expenses threaten to derail money management planning. When life throws you a curveball and you are short on cash, you may want to consider ways to borrow money.
Rather than take what seems like a reasonable loan offer at first glance, it is wise to conduct some due diligence to understand what loan options are available and how they impact your budget. Begin your search with your local credit union that provides budget-friendly loan products and typically offers its members lower rates and fees.
#1: Personal Loans are Great Ways to Borrow Money Quickly
Securing a personal loan can be one of a budget-friendly and easy way to borrow money. Personal loans can be used for medical bills, vacations, vehicle repairs, debt consolidation, home improvements, and unexpected events.
Members with good credit scores typically get lower rates, so it is wise to take the time to check your credit reports in advance to identify your credit score and clear up any blemishes or errors. Peach State’s personal loan rates can range from 6.9 percent to 17.9 percent and depend on someone’s unique financial situation.
Personal loans typically offer simple applications and fast processing times. Applicants usually receive money from an approved personal loan in 1 day, sometimes within hours. Apply online with Peach State for in-house decisions and faster processing.
#2: A Home Equity Line of Credit Lets You Borrow Money Against Your Assets
Property owners are uniquely positioned to enjoy affordable loan products that leverage equity in that property. Purchasing a home and making monthly mortgage installments over several years creates equity that can be leveraged when you need to borrow money. By identifying the difference between what a homeowner owes on the mortgage and current value, your credit union can provide you with a Home Equity Line of Credit or “HELOC” based on a percentage of equity that is available.
In some ways, a HELOC functions like a high-limit credit card. This option generally allows borrowers to access a line of credit up to $150,000 depending on the available equity, features an adjustable rate, has no prepayment penalty, and may offer tax deductible interest (be sure to consult your tax advisor). The process generally requires property owners to meet the following requirements:
- Home equity loan to value is 90% or less.
- A debt-to-income ratio above 45 percent.
- An average credit score (e.g. 620).
HELOC products can differ greatly in terms of rates and repayment terms. Introductory rates may start low for up to six months, with increases to follow. It is in your best interest to do your research before applying for a Home Equity Line of Credit. If you are unsure if a HELOC is right you, call Peach State’s Loans By Phone Center at 770.580.6000 to speak with a Member Service Advisor.
#3: A Second Mortgage Allows You to Access Your Equity as a Lump Sum
Also known as a home equity loan, these products usually provide qualified borrowers with a lump sum of money and steady repayment options. Like a HELOC, second mortgages let you take advantage of the equity you’ve built in your home, offer up to $150,000, and can be used for home improvements, college, medical bills, and more. Unlike a HELOC, borrowers receive all the funds at one time. When you borrow money with a second mortgage, you receive a fixed rate and no prepayment penalties.
The Annual Percentage Rate (APR) can be around 6.50 percent for a 15-year loan depending on the length and other factors. Second mortgage offerings differ significantly, so it’s essential to review your specific situation with a Peach State Loan Specialist at 770.580.6000 before making a decision.
#4: Borrowing Money From A Credit Card May Be Costly Depending on Your Situation
Leveraging credit card limits can be a quick way to pay for essential needs, car repairs, and unexpected expenses. Some people consider this method of borrowing budget-friendly because credit card minimum monthly payments tend to be exceedingly low. However, outstanding balances that are not paid off every month may be subject to high interest rates which may make other loan options more cost effective for large purchases.
The average interest accrued on credit card balances can range anywhere between 6.9 percent to 14.9 percent and even higher. Although a low-interest credit card from Peach State offers many benefits, other loan products may be more cost-effective for long-term borrowing depending on your specific situation.
#5: Tapping a 401(k)
It’s important to understand that when you borrow money from your 401(k) as a loan, it will result in interest payments of around 12 percent and, potentially other penalties. Federal and state agencies allow people to avoid tax liability on these accounts to help retirees enjoy a reasonable quality of life in retirement. Unfortunately, when you dip into retirement funds, it triggers certain regulations.
Although a 401(k) loan won’t require a credit check, it ranks among the least enviable ways to borrow. Along with the IRS requiring repayment within a set period in many cases, 401(k) loans may also make that money taxable. That constitutes a double-whammy when you consider it was making tax-free gains.
It's essential for people to get the best bang for their buck when they borrow money. Easy offers can sometimes lead even smart money managers to overpay. That’s why working with a trusted, local credit union makes sense.
If you are looking to borrow money, but are unsure which product is best for your personal situation, please contact a Loan Specialist today. We are happy to help you find the best solution for your needs.
