You’ll hardly come across anyone who can fulfill all the demands of life without borrowing money. People need money for so many things in life. For instance, a home, a car, food, clothes, education, medical expenses, and so on. The list is endless. Usually, people are able to put food on the table and buy clothes without taking out a loan. However, there are times when people need to borrow money for these things also. As far as home, education, and cars are concerned, people usually borrow money for them due to the high cost factor.
The demand and the need for loans have increased a lot ever since the pandemic broke down in the country. The economic turmoil and the job uncertainties have made it difficult for people to fulfill the basic necessities of life. As such, millions of people are exploring the borrowing options in the country.
What are your money borrowing options?
If you’re one of those people who want to borrow money, then here are a few options that you can explore.
- Personal loan: You can obtain this loan from a bank, online lender, financial institution, family or friends. You can use this money for whatever reason you want. The interest rate of a personal loan usually varies between 5% and 36%. There is a loan origination fee (six to eight percent) that you have to pay for processing the loan. Some personal loans have prepayment penalties to mitigate lender’s loss in the event of early loan payment.
- Credit cards: You can use a credit card to cover your various expenses. You don’t have to give clarification to anybody. However, keep in mind that you have to pay an interest rate on your transactions. The average interest rate is around 17 percent. You can also take a cash advance on a credit card. In that case, you have to pay a 25% interest rate on the cash advance. Moreover, you have to pay fees to the credit card company also. The repayment term starts from the transaction date.
- Home loan: You can obtain this loan from mortgage lenders for buying or renovating your home. The interest rate varies depending on your credit score. After COVID 19, the interest rate of a mortgage loan has dropped to 3 percent. You can also obtain a 10-year fixed rate mortgage at 2 percent interest.
Home loan is a secured loan. In the event of loan default, your home will be foreclosed by the lender. Home loans are of various types. Fixed rate mortgages and adjustable rate mortgages are the most popular ones. Senior citizens have the option of reverse mortgage also.
- Payday loan: This is popularly known as fast cash since money is credited in your bank account within 24 hours. There is no credit check. This means the interest rate on the loan does not vary based on your credit score. A payday loan has a fixed rate of interest. But, the interest rate is too high. Lenders charge as much as 500 interest on the loan, and you have to pay off the loan within 14 days, which is quite tough.
- Student loan: You can apply for this loan to sponsor your higher education. You can obtain student loans both from private lenders and the federal government. The interest rate is usually low and you have to start making payments after finishing your studies.
- Auto loan: This is again a secured loan that helps you to buy a car. If you default on the auto loan, then the lender can repossess your car. So, you have to make payments on time. You can obtain this loan both from a bank or a car dealer. Although it is easy to obtain a car loan from a car dealer, yet you should try to avoid it. This is because the car dealers charge a high rate of interest.
- Retirement accounts: If you have a retirement savings plan such as 401(k) or an Individual IRA, you can borrow money against your deposits. You can repay the loan later. Usually, when you borrow money from your retirement savings accounts, you have to pay an early withdrawal tax and penalties. Moreover, you have to show that you’re in financial hardship. You need the money for your kids’ higher education or your medical emergency.
- Peer-to-peer lenders: If banks and financial institutions don’t give you a loan, then you can approach peer-to-peer lenders for a personal loan. The interest rate charged by peer-to-peer lenders usually varies between 6% and 35%. You can apply for this loan online through a crowdfunding website. You can state your credit score and the quote the amount you need. Once your online loan application is approved, the website will disburse the amount in your bank account directly from the peer-to-peer lenders.
What to keep in mind before borrowing money
When you borrow money from lenders or financial institutions, there are a few things that you must remember.
First, you should never borrow money from someone who charges a high interest rate.
Second, you should not go beyond your affordability when it comes to borrowing money.
Third, you should never borrow money without any valid reason. Just because you’re qualifying for a loan, it doesn’t mean you should take it.
Fourth, you should always analyze loan terms and conditions. If the loan tenure is too long, then you should avoid going for it. Fifth, you should always shop around before borrowing a loan. Your goal should be to grab a loan with a low rate of interest.
Fifth, you must find out the tax implications and benefits of a loan.
There are several borrowing options in the country. But that doesn’t mean you should borrow money unnecessarily. Remember, none of the borrowing options give you free money. You have to pay them off. This puts an additional financial burden on you. Why would you take on additional financial pressure on yourself without any reason? Think about it.