You might go to the dentist with a sore mouth and discover, to your dismay, that you need several thousand dollars’ worth of work to fix it. Or else the transmission goes bad on your aging car and needs to be replaced. Or maybe your grandma had a bad day at the casino and is now reneging on her promise to pay your college tuition bill.
You get the idea. There are plenty of scenarios in which you might need money in a hurry. A personal loan — basically, an installment loan from a bank or another financial institution, in most instances without the need to put up any collateral to secure it — is one way to get your cash. These days, with the advent of online lenders who use financial technology, also known as fintech, to automate the loan approval process, you may be able to get that money deposited in your bank account more quickly than ever.
"Many online personal loan services are able to provide you with a loan within just one business day," explains to Joseph Schwartz, head of content at loan-comparison website Fundinghero.com, in an email interview. "The funds will be deposited directly into your account and you will be able to use them however you wish."
In addition to taking out a personal loan, there are other ways to come up with quick cash in a pinch, though some of them have downsides as well. And there are some options that you definitely should avoid. Here’s more about the various options.
1. Apply to an Online Lender for a Personal Loan
"Online lending platforms also have the added advantage of providing several loan options with varying terms and conditions, allowing the borrower to choose the most comfortable option," Schwartz says. "Sure, they can do the same thing by going bank to bank, but an online loan service will save them both time and money."
Todd Nelson, senior vice president of online lender LightStream, a division of SunTrust Bank, concurs. "Fintech has made getting a loan easier," he says by email. "There’s no need to go to a bank branch, fill out paperwork, then wait to get an answer and finally receive your funds. You can get a loan at your convenience via a computer, tablet or smart device."
In LightStream’s loan process, a potential borrower fills out a short form. Then, using LightStream’s proprietary technology and a series of algorithms, a decision is made on the loan, and the borrower is quickly notified. After the initial approval, the borrower has to put an electronic signature on the documents, provide bank account information, and select a monthly payment date. At that point, the funds are deposited directly into the person’s bank account — "often as soon as the same day of application," according to Nelson. There aren’t any limits placed on what the money can be used for, he says.
2. Take Out a Cash Advance on Your Credit Card
One big advantage of cash advances is that they’re really quick. All you’ve got to do is go to an automatic teller machine, punch in your PIN number, and withdraw however much money you want, up to the limit that the credit card issuer allows. But as this article from Experian points out, cash advances have some serious drawbacks. For one, they typically come with a much higher APR than purchases, and unlike the latter, the credit card company starts charging you interest immediately, rather than providing a grace period in which you can pay off the balance and avoid charges. In addition, you usually have to pay a cash advance fee, which can add another 5 percent onto the amount you’re borrowing.
3. Ask Your Employer to Advance Your Pay
It’s becoming increasingly common for employers to give workers access to their wages in advance. A 2019 study by PYMENTS.com in collaboration with MasterCard, for example, revealed that nearly 44 percent of gig workers in the U.S. have received either a partial or complete advance on earnings, amounting to $236 billion a year. Some regular employers are doing it as well. Walmart, for example, provides employees with a mobile app that allows them to access earned wages ahead of payday up to eight times a year for free. One drawback is that you’re borrowing your own money, so you won’t have your normal amount on payday to cover your other expenses.
4. Borrow Money From Someone You Know
A family member or friend may be willing to help you out. A 2019 survey by personal finance website Bankrate found that 60 percent of Americans have helped out a friend or family member by providing a loan, with the expectation of being paid back eventually. But these transactions come with risks, and not just financial ones. In the survey, 37 percent of the lenders lost money, while 21 percent say their relationship with the borrower was harmed.
5. Seek Help From a Local Community Organization, Charity or Religious Group
Some communities have started nonprofit credit unions to help residents get low-interest loans in emergency situations and avoid having them pile up high-interest debt and slip into an even worse financial jam. Personal finance website NerdWallet provides this database of low-cost alternative lenders in various states.
6. Leverage a Life Insurance Policy
"Another lesser known strategy is to leverage whole life insurance policies and cash value," explains Keith Minn, managing partner at Minn Retirement Consultants in Boone, North Carolina, in an email exchange. "If someone is the owner of a whole life policy, it may be a good idea to take a loan against the cash value at a fixed rate, considering many policies are paying dividends or interest back to the cash value. Of course, each policy should be reviewed by a professional, but there are ways to offset the interest on the loan by the participation provisions." One downside, he cautions, is that if you don’t pay back the loan by the time you die, your heir will get a smaller death benefit.
Options to Avoid
Payday loans are really short-term loans that typically are due on the borrower’s next payday. That might seem like a great way to get some cash, except that these loans typically charge an astronomical APR — 390 percent or more, according to the Federal Trade Commission. That can quickly turn a small loan into a big expense.
If you’ve got a poor credit history, you may also be tempted by advance-fee loans or credit cards, which proclaim that you’re guaranteed to qualify, even before you apply. The FTC warns that these offers may turn out to be scams, in which crooks posing as legitimate lenders ask for up-front fees, or else try to steal your personal information for identity theft.
Yet another undesirable option is a car title loan, which is similar to a payday loan, except that you use your car’s title as collateral. The loans are typically 15-to-30-day terms, and carry triple-digit interest rates, according to the FTC. As a result, you may have a tough time keeping up with the payments, and run the risk of losing a vehicle that you need to get to work.
Now That’s Important
If you only need a short-term loan and the expense is something that you can pay with a credit card, it may make sense simply to charge it, according to Christopher Peterson, director of financial services for the Consumer Federation of America, and also a law professor at University of Utah in Salt Lake City. "Credit cards have a natural short term loan built in for free if you don’t carry a balance," he explains.