At any time, consumers can run into a situation where they need extra cash. Whether the situation is of an emergency nature or you are looking to improve your life, your home, or your personal interests, there are several financial options for consumers to pursue.
Compare Your Alternatives
It is important to explore all of your options before attempting to get financing assistance. You need to ensure the option you commit to is in your best financial interests and that you will be eligible for the option you select. Oftentimes in an emergency financial situation, consumers make snap decisions out of desperation and end up regretting the consequences, which can include unaffordable repayments and higher-than-necessary interest charges and fees.
There are personal loans you can seek out from a variety of lenders. You may also consider loans based on the equity in your home. There are also payday loans which are not recommended by financial experts because of their high interest charges. Payday loans may also create a vicious cycle of debt that can go on for years.
Check With Your Bank
Outside of personal loans and mortgages offered by your bank, there is another option to consider when you need money. A bank’s line of credit program may be a good choice for your financial needs.
A line of credit works simply enough. The money available is a pre-approved amount which can be repaid to the bank in installment payments over time or as a lump sum on a pre-determined date. Lines of credit are available in varying amounts depending on your eligibility. Most banks will require some form of collateral on the loan including personal property and assets, but there are also options for unsecured lines of credit. A line of credit will incur interest charges and fees. However these fees will likely be lower than other types of loans, especially when compared to payday loans.
What to Watch For
Like everything that goes along with personal finance, there are potential drawbacks to accessing money through a line of credit from your bank. One particular consideration everyone needs to make is the affordability of the action as well as your ability to repay the debt. You can put your finances in jeopardy by defaulting on the repayments, so it is important to first determine if a line of credit is worth it.
Borrowers also need to research the interest rates for accessing lines of credit. The unsecured lines of credit typically carry a much higher interest rate than funds backed by collateral. Some banks only extend lines of credit that have variable interest rates which means the interest charges incurred will not always be at the same rate. This is fine when rates are low but can get excessive when rates are high. If you choose a line of credit from your bank based on the equity in your home, you are putting yourself at a serious risk. In the event you default on your loan, you may be put in the position of losing your home.
As with any financial decision, you need to compare the various options available. A line of credit from your bank should certainly be an option to consider first. With your existing relationship with your bank, you may score a better deal than with other lenders when you need extra cash. But you should also explore other options before making your final decision.
A line of credit may be a convenient way to access money when you need it but make sure you never abuse the service. While repayment amounts and interest rates may be the lowest of all the services out there, you do not want to mishandle to loan and risk your reputation with bank. Also remember that loans and lines of credit need time to be processed. If you are in a hurry for your cash, a line of credit, personal loan, and other financial options may not provide you with the cash you need quickly enough. With proper planning and research, you can find the right source for necessary money without putting your financial life at risk.
To learn more about available sources of credit, read this article on weighing your loan options.