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6 Best & Worst Ways to Borrow Money

14-Aug-2012

1. Credit card cash advance. Most credit card companies offer customers the option to get cash via an ATM or bank withdrawal (sometimes it comes in the form of a check), but that convenience comes with a price. "First of all, you'll be charged an initial fee of 3 percent to 5 percent on the transaction and that cash amount immediately starts incurring interest." In other words, you don't have any grace period at all. Perhaps the worst part, however, is that a cash advance is subject to a much higher interest rate than you'd have on a regular credit card purchase. It can be 10 percent to 15 percent higher than your credit cards regular rate.
Rate: Bad
2. Borrow from a relative. If you're lucky enough to have a well-off relative who's happy to help you out of a jam, good for you. But even so, when asking for a loan, sit down together and put the terms in writing. All involved should have a payback plan in mind before borrowing/lending. It could even involve some collateral for the loan or allow for smaller monthly amounts and a balloon payment at the end of the loan.  There are even online services like LoanBack.com and LawDepot.com that allow you to customize a family loan contract for a small fee. The extra effort may help avoid a family feud over a few hundred bucks.                                                                                     Rate: Good
3. Pawnshop loan. Believe it or not, a pawnshop loan is one of the better options to consider. They usually require collateral including but not limited to vehicles, jewelry, coins and antique’s of measurable value. They also have strict repayment plans, but they continue to evolve and over the last decade have become more user friendly.
The way it works is you bring in an item as collateral for the cash they give you. In most cases the pawnshop must keep your item for an agreed upon amount of time (for instance, 90 days). If you come back and pay back the loan before the term is up, you get your item back. If you don't, your item is sold
The perks: There are usually no credit checks. And you have the option to not pay it back legally. In terms of risk, the only thing to consider is how much sentimental value or practical use the item has, just in case you're unable to pay for it, or to negotiate a longer term.                                                     Rate: Fair
4. Payday loan. Similar to a bank direct deposit advance, the way a payday loan usually works is you write a postdated check for the amount you are borrowing with a fee and interest tacked on, and the establishment gives you cash for it on the spot. Another alternative is to allow the payday lender to electronically transfer the amount from your bank account to theirs come payday. In other words, you're granting them access to your bank account, which is always a shady prospect.
As long as you pay it back on its first due date your fairly okay, if not, it is like the ultimate financial snowball that turns into a huge debt avalanche. Borrow $100 to start, and it could turn into thousands. The reason; payday loan providers make it easy to get some cash immediately and are often reassuring, telling you not to worry if you need to roll your loan over for another pay period or until you're back on your feet. Of course, that means the fees will keep adding up, too. Some payday advance companies take full advantage of people who don't understand the system.                    Rate: Bad
5. Peer-to-peer lending. Fairly new to the lending arena is peer-to-peer lending. Sort of like the eBay of small loans, a group of lenders pool available funds and then decide which borrowers they'd like to work with. The SEC is involved, so it's regulated, but it can still be a less strenuous qualifying process than a traditional bank loan. These lenders are more geared toward borrowers with good credit. Lending clubs turn down a high majority of borrowers, so it's more of a long shot three pointer, than a slam dunk. If you have excellent credit and aren't in debt up to your eyeballs, though, you can get a good interest rate and term on your signature alone.  Rate: Good
6. Finance Company. Most finance companies are built on making smaller personal loans, whether secured or not, to customers who may or may not have good credit. The better your credit rating though, the more you can borrow at a medium level rate and possibly without collateral. It’s medium to higher rates and collateral for the rest of their customers. Finance companies also offer loans to people with damaged credit and as a result of timely repayment from the customer, can actually help restore their overall credit rating. You can borrow anywhere from $500.00 to approximately $5000.00 and usually have the option of dealing with a local company. You will probably need collateral to qualify for larger amounts and you will have to go through a quick verification process. Approval is usually fast and you can discuss your monthly payment amount before you agree and sign any contracts.                                                                                                  Rate: Good


Whatever decision you make, be sure to get all the facts up front and as always, READ THE FINE PRINT…..

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