LOS ANGELES, June 14, 2021 (Newswire.com) - When you're in a tight spot financially, even the most unconventional ways to borrow money could start to look promising. But even though you can get money through these means, that may not mean it's a good idea. Here are 4 ways to borrow cash when you need money now that you might want to think twice about.
Credit Card Cash Advance
If you already have access to a credit card, you may be eligible for a credit card cash advance. A credit card cash advance essentially means taking out an online loan from your credit card. But beware, it's not the same as when you make a purchase.
Unlike with regular credit card purchases, which can have a grace period, you'll begin accruing interest on your cash advance immediately. On top of that, you'll also need to pay a transaction fee which often runs about 3-5% of the amount you're taking out.
Dipping into Retirement Savings
Retirement savings vehicles serve the purpose of taking care of you financially later in life. It may not be a good idea to borrow against one of your accounts, like a 401(k), and fail to put the money back.
Withdrawing a loan against a 401(k) may carry a penalty upwards of 10%. The good news is that this loan's interest goes back into your account instead of to another lender.
Be cautious about taking out a retirement loan, especially if your employment is unsteady. These loans can be called in (you'll be required to pay it all back) within 90 days if you part ways with your current employer.
The caveat here would be borrowing from an account like a Roth IRA. This type of retirement account allows you to borrow against the principal without penalty. But to salvage your retirement dreams, you may want to pay back the money you've borrowed as soon as possible. Missing out on compounding growth over time could have devastating impacts on your financial future.
Pawning Your Things
Pawn shops can quickly dole out cash for a short-term loan as long as you provide collateral they view as valuable. Many people who use pawn shops sell jewelry, electronics, or other items for a loan that's approximately 30-60% of the amount the shop could resell it for.
While it may seem like a decent way to get money in a bind, pawn shops can charge hefty interest rates and may assess fees to store items or renew your loan if needed. Not to mention that if you can't pay back the loan, you can say goodbye to whatever items you pawned.
Tax Refund Loans
If it's early in the year and you already know you'll be getting money back on taxes, a tax refund anticipation loan may seem promising. But these loans, which you can get for the full amount of your refund, will still need to be repaid if you don't get as much back as you anticipated.
You might unexpectedly get less money back because a formerly dependent child is now filing on their own, or your earned income credit decreased because you made more money. It's also worth noting that a tax refund loan charges interest and will remove a hefty chunk of change for fees as well.
The Bottom Line
If you need money now, there are some wiser alternatives. You could ask for help from friends or family, consider a personal loan, take out a home equity loan using value already in your home, or work with your employer for a payroll advance. It may feel like you need to take the first option available, but spending a few minutes to weigh all of your options could save you a lot of time and energy in the long run.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
Source: iQuanti, Inc.