40% of Americans don’t have enough savings to cover a $400 emergency expense. In the event of an emergency, this means they would have to find ways to borrow money and/or reduce their current expenses to cover the costs.
So if money is tight for you right now, then you’re certainly not alone. If you work from home and/or your income fluctuates, then you may be experiencing a level of financial insecurity on a regular basis.
Being self-employed and working from home is becoming more and more popular, however. Far from just a trend, many people are making the leap from working in the traditional workforce to working on their own schedules. However, this can come at the cost of financial security and additional stress.
But, when an unexpected expense occurs your only option may be to borrow money until you can get back on your feet. So if you’re working from home and are self-employed, then knowing your borrowing options will help you to feel more at ease when money is tight.
Read on to discover 5 ways to borrow money during tough times.
1. Home equity loan
A home equity loan is a loan that uses the equity you have in your home to determine a loan amount. It is a secured loan with a fixed interest rate and repayment terms.
The benefit of home equity loans is that interest rates can be low and you can take out a large lump sum depending on how much equity you have. The major downside to a home equity loan, however, is that you’re using your house as collateral.
So, if you are unable to pay back your home equity loan and default, then your house could be repossessed by your lender. Another potential drawback to home equity loans is that your income and credit score will also factor into your loan’s terms and the interest rate. However, home equity loans typically have lower interest rates than other types of loans because they are a lower risk for the bank.
Another way to borrow money with your home equity is by securing a home equity line of credit. This line of credit works similarly to a credit card in that you’ll receive a credit limit and be able to withdraw funds as needed for a certain amount of time.
You can also take out a much larger line of credit than a credit card issuer would provide based on your income, home equity, and credit score. One major con of home equity lines of credit, however, is that interest rates aren’t fixed, so you may be required to pay more interest later on than your original quoted rate.
2. Personal loan
Most personal loans are unsecured loans that you can receive from a lender. Personal loans typically allow you to receive larger sums of money without collateral. The money you receive will likely be less than a home equity loan, but more than a credit limit on a credit card. These unsecured personal loans have either fixed interest rates of variable interest rates, but also shorter loan terms.
One downside to personal loans, however, is higher interest rates. The average interest rate for a personal loan from a commercial bank is 10.22%, but this can vary greatly based on your credit score and the lender.
You can also receive other types of personal loans such as secured personal loans. These loans require collateral in the form of your house or the title to your vehicle.
Another personal borrowing option is a personal line of credit. Similar to the home equity loan line of credit, a personal line of credit allows you to only take out funds you need up to a limit instead of getting a lump sum. What’s more, is that you only end up paying interest on the amount you borrow.
The most important thing when securing any type of loan or credit is the interest rate and loan term. If the interest rates are simply too high, then it might be in your best interest to find another way to borrow money.
3. Peer-to-peer lending
Peer-to-peer lending means that you will need to ask to borrow money from a family member or friend. It can definitely feel awful to have to ask to borrow money from someone, but in the end, it may be your best option.
If you decide to go this route, make sure to make the borrowing terms crystal clear. You should also not agree to any loan terms that you know you won’t be able to repay to avoid damaging your important relationships.
Another peer-to-peer lending method is finding an individual lender online using lending websites. These types of loans can get you money quicker than a bank, but some are tailored to specific borrowing expenses and can carry higher interest rates.
4. Credit cards
Signing up for a credit card is another way to borrow money quickly. However, your credit limit will likely be much lower than a loan from a lender.
But, keep in mind that credit cards typically carry much higher interest rates.Interest rates and fees on credit cards vary, so make sure to always thoroughly read through the credit issuer’s terms.
If you’re unable to pay back the credit card balance, however, then your finances could get even worse. Think it through and have a repayment plan in mind.
Getting a cash advance with a credit card is also a way to secure money quickly. With a cash advance, you can use your line of credit to receive a lump sum of money. Be advised that this type of borrowing method is not the best course of action because of the outrageous interest rates and fees.
5. Payday loans
Payday loans are extremely short-term loans which can carry higher interest rates. You can use these loans for any expense and you can get the money quickly. They also do not require a credit history check.
To a get a payday loan you’ll need to provide your lender with your bank account and income verification and a post-dated check they will cash on your next payday.
If you’re in a real bind and feel confident that you’ll be able to pay the whole loan back, then these loans are available online and in some storefronts. If you live in Canada, Bonsai Finance is a payday loan lender who can help you get the cash you need.
Smart ways to borrow money
Finding smart ways to borrow money in a bind is essential for your long-term financial health. Always make sure to be realistic about repayment and the interest rates to avoid damaging your credit and livelihood.
In the end, sometimes we all need a helping hand. Whatever borrowing method you use, try to always get the best deal possible and read and understand the terms completely.
Want to learn how to better manage your finances? Check out our blog post for three helpful financial management tips.