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If you’re scrambling to cover your rent or stay ahead of bills, a personal loan could look like a good solution. But personal loans that are marketed as fast money options can come with a big price tag if you’re not careful.
A quick personal loan option could give you fast access to funds directly deposited into your bank account. If you have good credit, you may be able to find a loan with favorable terms. But some loans charge exorbitant interest rates and high fees.
What is a quick loan?
Quick loans are personal loans that may be funded in a short amount of time. You can find personal loans offered at credit unions, online lenders and traditional banks, and some other nontraditional lenders.
Personal loans are usually unsecured, which means the funds are not secured by an asset or property as collateral, like a vehicle or home.
There are other personal loan options that are offer funding quickly that are often less favorable to borrowers. For example, payday loans, auto title loans, and other high-interest, short-term debt can be incredibly expensive. You should try to avoid these types of loans whenever possible.
Personal loans and credit lines from credit unions and banks
Many banks and credit unions offer personal loans, often unsecured, that can be funded in a short amount of time — if you’re approved. These types of loans are installment loans that you pay back with regular monthly payments over a fixed period of time.
A personal line of credit works more like a credit card. It’s a revolving line of credit that allows you to take out money, up to a certain credit limit, and then pay it off over time with interest.
Personal loans from online lenders
The borrowing process can be quick and easy for a personal loan with an online lender. Just like personal loans and credit lines from credit unions and banks, after submitting your loan application the lender will perform a hard credit inquiry to determine how much money you can borrow and at what interest rate.
If you’re approved, the lender can typically send the funds right into your bank account, often within only a few business days.
You would then pay back the loan amount as scheduled until it’s fully repaid.
These loans can make sense — if you qualify for a competitive interest rate.
Payday loans and payday advances
A payday loan is another type of quick personal loan. They’re typically for $500 or less and due on your next payday.
Lenders that offer these types of loans often charge exorbitant fees, which can equate to interest rates of around 400% in some cases. To put things into perspective, a $500 loan with a $50 lending fee equates to an APR of more than 260%.
This type of loan can often be rolled over or renewed for only the cost of the lending fee, which increases the total cost for the borrower, and moves the loan out to the next payday.
This cycle of applying for and then renewing payday loans can quickly put a consumer in a cycle of debt, and so applying for this type of loan to get funds quickly should be avoided whenever possible.
A potentially cheaper option is a payday alternative loan, which is a small-dollar loan offered by certain federal credit unions. The interest rates on these short-term loans can’t exceed 28%, and loan amounts are between $200 and $1,000.
Car title loans
A car title loan is another expensive short-term loan.
This is a type of secured loan, where your vehicle is used as collateral. This means your car’s title or registration is left with the lender until you pay back the loan in full — and can be repossessed should you fail to make your payments as agreed. You must repay the loan with interest and fees, with loan terms typically between 15 and 30 days.
These loans are expensive, often offered by predatory lenders and should be avoided if possible. A report from the Consumer Financial Protection Bureau found that one in five auto title loan borrowers had their vehicle seized by a lender for being unable to repay the loan.Car title loans: 3 things to know before getting one
With a pawn shop loan, you can use an item of value to secure the loan. A pawn shop will assess the value of the item and keep it on hand as collateral to back the loan.
Examples of items you can use as collateral for a pawnshop loan are jewelry, musical instruments, electronics and other high-value items. Terms for pawn shop loans vary and often include high interest rates.
You’ll typically be required to pay back the full amount of the pawn loan to reclaim your pawned item, though the amount of time you have to repay the loan can vary from state to state.Is a pawn shop loan a good idea for quick cash?
Peer-to-peer lending, also known as marketplace or P2P lending, gives you an option to borrow directly from individual investors and removes financial institutions from the equation. A third-party platform where borrowers can search for and apply for these loans acts as an intermediary.
Instead of a bank making money on interest, the investors can earn money from interest payments. But peer-to-peer lending can come with fees, along with potentially high interest rates, for some.
What to watch out for with quick loans
For many, being strapped for cash is a common situation.
According to a 2017 study by CareerBuilder, 78% of U.S. workers live paycheck-to-paycheck. Of those who earn $100,000 and up every year, almost one in 10 workers lives paycheck-to-paycheck, the survey found.
If you have bad credit, you may be limited to high-interest loan options like online and payday loans, which can be expensive, so make sure to carefully plan how much you will need to borrow and what it will cost you in the long run. In some states, the fees for payday loans can add up to the triple digits — in Idaho, for example, the average payday loan fee is equal to an APR of 521%. And with a car title loan, your vehicle is at risk for repossession if you don’t pay back the loan as agreed.
Alternatives to high-interest debt
If you’re worried about covering your bills, low-interest personal loans might be an option for you to consider.
Just be aware that even if a lower interest rate is advertised by a lender, it’s not guaranteed for all applicants, and so borrowing could still result in a loan with a higher interest rate. Your eligibility and interest rates are based on your credit history and credit scores, among other factors, so it’s a good idea to get an idea where your credit is at before applying.
Here are some options you can consider if you have trouble qualifying for a personal loan.
- Get a co-signer. If you have difficulty qualifying for a loan on your own, a co-signer with good credit, like a parent or spouse, may be another alternative to avoid high-cost debt.
- Ask for an extension. If you’ve recently become unemployed or experienced a crisis, you also can reach out directly to creditors to see if they’ll grant you a bill extension.
- Try an online alternative. Several companies have emerged as alternatives to payday options. PayActiv works with certain employers to provide access to earned (but unpaid) wages for a membership fee of $5, which is charged each time they use the service. Earnin is another payday loan alternative that asks for tips, instead of fees or interest, on loans.
Many people have a quick loan alternative in their wallet that offers an interest rate below what you might pay at a quick-cash lender: your credit card. Just be sure to pay it off in full before the due date each month and you won’t have to pay any interest.
But if you don’t have a credit card and find yourself in the market for a quick loan, you should do your best to avoid predatory lenders, high fees and interest rates. If you’re able to work with only high-quality, reputable lenders, you should have a better overall borrowing experience. But it’s best to avoid feeling strapped for cash from the start.