Life is full of surprises. You may find yourself in a situation where you need money urgently, and you don’t have enough savings or credit to cover it. Maybe your car breaks down, you set your roof on fire, you or your pet needs surgery, or a toothache becomes unbearable. Whatever the case, you need a solution fast.
While this is an uncomfortable position to be in, you should know that you have options. Let’s go through some of them together.
1. Income-Based Advance
Maybe you don’t need a loan, but instead an income-based advance. An income-based advance (also known as Earned Wage Access) gives you money upfront based on how much you earn or expect to earn. Based on your income, you can receive your hard-earned money early, but bear in mind there are usually fees or interest when you pay it back. This is not a loan.
The benefit to you is that your money is more accessible. This is not a loan, but an advance on your current or future income. This means it doesn’t require collateral, so you don’t risk losing your personal assets.
Check out Earned Wage Access and other cash advance offers below.
2. Emergency Loans
An emergency loan is a type of personal loan that you can use for any emergency expense. You can borrow a certain amount of money and repay it over a fixed period of time, usually with interest. Unlike other types of loans, such as mortgages or car loans, you don’t need to put up any collateral.
Emergency loans have several advantages over other sources of emergency funds, such as:
Speed: You can apply for an emergency loan online in minutes and potentially get approved within hours or even minutes. Some lenders can deposit the funds into your bank account as soon as the same day or the next business day.
MoneyLion can help! You could find a match within minutes, compare different offers from multiple lenders, and find the best deal for your needs and budget.
Flexibility: You can choose how much you want to borrow and how long you want to repay it, depending on your needs and budget. You can also use the money for any purpose, without any restrictions or questions from the lender.
Affordability: Emergency loans typically have lower interest rates than other forms of credit, such as credit cards or payday loans. The interest rate depends on your credit score, income, and other factors, but you can compare different offers from multiple lenders on MoneyLion’s Marketplace to find the best deal for you.
3. Borrowing against your 401(k)
If you have a 401(k) plan at work, you may be able to borrow up to 50% of your vested balance or $50,000, whichever is less, and repay it over five years. This can be a quick and easy way to access your own money without affecting your credit score or paying taxes or penalties.
However, there are some drawbacks to this option:
Reducing your retirement savings: By taking money out of your 401(k), you will miss out on the potential growth and compounding of your investments over time. You will also have to pay interest on the loan, which may be higher than the returns you could have earned in your account.
Risking default: If you fail to repay the loan on time, or if you leave or lose your job before paying it off, the loan may be treated as a distribution and subject to taxes and penalties. This can add to your financial burden and jeopardize your future retirement security.
Shorter time to repay should you lose your job:
If you stop working for your current employer, you will have a shorter time to repay your 401(k) balance. This applies whether you resign, get terminated or switch jobs. According to the new tax law, you can repay your 401(k) loan before the deadline of your federal income tax return in such situations.
You may not get it:
Your employer and their plan determine whether you can get a 401(k) loan or not. Based on a 2021 study, only 78 percent of plans had loans that were not repaid yet. So you might have to look for other sources of money.
4. Home Equity Line of Credit (HELOC)
If you own a home and have built up some equity in it, you may be able to get a line of credit that allows you to borrow money against the value of your property. You can use the money for any purpose and repay it over time, usually with a variable interest rate.
With a HELOC, you could get:
A Large borrowing limit: Depending on your home’s value and your equity, you may be able to borrow a substantial amount of money that can cover most emergency expenses.
Low interest rates: A HELOC typically has a lower interest rate than other forms of credit, especially if you have a good credit score and a low debt-to-income ratio.
Tax deductions: The interest you pay on a HELOC may be tax-deductible if you use the money for home improvement purposes.
However, there are some serious potential downsides, such as:
Putting your home at risk: By using your home as collateral, you are exposing yourself to the possibility of losing it if you default on the loan. This can happen if your income drops, your expenses increase, or the interest rate rises.
Fees and charges: A HELOC may come with various fees and charges, such as application fees, appraisal fees, closing costs, annual fees, and prepayment penalties. These can add up to the cost of borrowing and reduce the amount of money available to you.
Reducing your home equity: By borrowing against your home equity, you are reducing the amount of ownership you have in your property. This can affect your ability to sell or refinance your home in the future or to access more funds if needed.
5. Credit Card Cash Advances
If you have a credit card with an available balance, you may be able to withdraw cash from an ATM or a participating bank using your card. This can be a convenient and fast way to get emergency money in an emergency, but there are some cons, such as:
High interest rates: Credit card cash advances usually have a higher interest rate than regular purchases, and the interest starts accruing immediately.
Harming your credit score: Credit card cash advances could negatively affect your credit score by increasing your credit utilization ratio (the percentage of available credit that you use). This can lower your creditworthiness and make it harder for you to get better terms on other loans or cards in the future.
6. Payday Advances
If you have a steady income and a bank account, you may be able to get a short-term loan from a payday lender that allows you to borrow money until your next paycheck. This can be an easy and quick way to get emergency money in an emergency, but it also comes with some serious risks, such as:
Extremely high interest rate: Payday advances can have an annual percentage rate (APR) of up to 400%, which means that you will pay a lot more than what you borrowed in interest and fees. For example, if you borrow $500 for two weeks at an APR of 400%, you will end up paying $575 in total.
Debt trap: Payday advances are designed to be repaid in full on your next payday, but many borrowers find it hard to do so and end up rolling over or renewing their loans for another fee. This can create a cycle of debt that is hard to escape and could potentially lead to devastating financial consequences.
Let’s Conclude
We know that facing a financial crisis can be stressful and overwhelming, but you don’t have to deal with it alone. You have options, and we’re here to help.
And remember, life is full of surprises, but not all that starts bad ends bad. If you find yourself in an emergency situation, we hope this article helped make things a bit easier.
