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Lines of credit, home equity, loans, credit cards

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  • To get money in a pinch, you have options ranging from borrowing your assets to taking out an unsecured loan.
  • Borrowing against assets tends to be cheaper, but you need to own the assets first, like a house (to get a home equity loan or HELOC) or a large investment portfolio (to get a portfolio loan) .
  • If those aren’t options, a personal loan or credit card might be a better choice.
  • Learn more about personal finance coverage »

There is no perfect solution to borrowing money.

One option is to borrow from family and friends, but experts often warn against this as these types of loans can strain relationships.

Or, you can borrow against your retirement savings. Amid job losses and financial woes from the coronavirus outbreak, the US government’s $ 2 trillion stimulus package allows penalty-free 401 (k) s withdrawals and loans. However, experts warn that it can be risky: If you’re made redundant or change jobs, repayment is due immediately, and borrowing from your retirement account could cause you to lack growth over the years.

Borrowing against your assets, like your investment portfolio or house, or borrowing from a bank might be better alternatives. Keep in mind, however, that any method will cost you interest and you will be responsible for paying off the loan in full.

If you’re strapped for cash, here are a few ways to get the cash you need, from the cheapest to the most expensive.

1. A home equity line of credit

Typical interest rate: 5.61% variable rate, according to ValuePenguin

Who can use one? Homeowners who have at least 20% equity in their home

Home equity lines of credit, also known as HELOCs, are popular ways to borrow at interest rates far lower than most credit cards or personal loans can offer. This option is only available to homeowners with equity in their home, so it may not be the right option for everyone.

HELOCs generally limit the amount you can borrow to 85% of the equity in your home, or 85% of the amount it’s worth less what you owe on your mortgage. With this type of loan, you borrow what you need as you need it, since the line of credit stays open almost like a credit card.

However, that means you are putting your house as collateral – you risk losing your house if it is not paid off. When used correctly, however, it can help you realize the value you’ve built in your home at a low interest rate.

How to apply: Apply for a HELOC from any major bank that offers them. You will provide information about your home, mortgage, income and more. Next, you will need to have your home appraised. Finally, close your loan and start drawing down your funds.

2. A home equity loan

Typical interest rate: 5.82% on average, according to ValuePenguin

Who can use one? Homeowners who have at least 20% equity in their home

While a home equity line of credit and a home equity loan may sound similar, and even though the two are called “second mortgages,” they are quite different. A home equity loan also borrows against the equity in your home, but it works more like a traditional loan than a HELOC. Payment is made as a lump sum rather than as needed, and will have a fixed interest rate, monthly payment, and repayment date.

Home equity loans are a great alternative to personal loans for homeowners – they work like a personal loan without the variable interest rate and revolving credit that come with a HELOC. Like a home equity line of credit, your home acts as collateral, which puts it in jeopardy if you don’t pay off the loan. An ideal home equity loan for someone who knows how much to borrow, wants a fixed monthly payment while repaying, and only wants to receive the funds once.

How to apply: Banks and lenders offer home equity loans, and the demand is similar to that of a HELOC. You will need to have information about your home, mortgage and income, as well as an appraisal. Then you will close your home equity loan and receive the funds you borrowed as a lump sum.

3. A credit card

Typical interest rate: 15.05%, according to Federal Reserve data

Who can use one? People with good or better credit, usually a minimum of 670 for a 0% APR credit card

Credit cards are a notoriously expensive way to borrow money. If you don’t pay off your balance every month, the high interest rate means borrowing that money gets expensive, fast. So if you are planning to put your expenses on a credit card and know you can’t pay them immediately, you might want a credit card with a 0% introductory APR.

These 0% APR cards offer you an interest-free credit term, generally between nine and 21 months, depending on the card. If you pay off your balance in full before the 0% interest rate expires, that could mean a free loan. These cards are often referred to as balance transfer cards because you can transfer your balance from another card (for a fee) to take advantage of the introductory rate. This is a good option for covering small bills and purchases for anyone who is sure they can repay the funds quickly.

However, note that after the introductory period ends, the card will apply a regular (read: high) interest rate to the existing balance. If you don’t pay off your balance on time, this might not be the best method of borrowing for you.

How to apply: To benefit from an APR introductory offer, you must open a new card. Check your credit score for free online, then apply for a card that matches your credit score. After you apply for your card, research any charges, and find a length of time that will suit your repayment plans. Once you’ve applied for and got your new card, be sure to note when the interest rate will increase and plan to pay off your balance before then.

4. A personal loan from a credit union

Typical interest rate: The average interest rate for a 36-month unsecured loan from a credit union was 9.36% in December 2019

Who can use one? Any member of a credit union with a good or better credit score

Credit unions

Often charge less interest than banks on their loans, but they restrict lending to members. According to data from the National Credit Union Association and S&P Global, these local member-owned institutions offer personal loans on average 0.8% cheaper than national banks as of December 2019.

How to apply: If you are already a member of a credit union, you can apply there. Otherwise, joining one is usually fairly straightforward, but note that many have straightforward membership requirements, such as living in a certain area. Apply on the caisse’s website or at a branch. While they may be cheaper than bank loans, this isn’t always the case, so it’s a good idea to compare deals with online lenders and other banks to make sure it’s the best. offer for you.

5. A personal loan from a bank

Typical interest rate: 6% to 30% or more. The average interest rate in December 2019 was 10.18% APR.

Who can use one? Anyone with a good or better credit score.

Personal loans have high interest rates, but there is no limit to what you can do with the money. According to Sipes, a personal loan is a last resort.

While it is possible to find personal loan interest rates below 4% like those offered by Lightstream, it is only possible to get rates as low as with the best credit scores. More often than not, interest rates start at 6% and can rise to the average of 30%. Additionally, some lenders charge an administration or origination fee based on a percentage.

Personal loans aren’t the most affordable way to borrow, but they are often unsecured loans, meaning you won’t have to post any collateral, like a house or car, for the loan. For someone who doesn’t have a home or a large investment portfolio, a personal loan might be the best choice.

How to apply: Look for a personal loan that matches your income, credit score, and needs. Pre-qualify with several different lenders online and find the lowest APR available. Then gather information about your income, expenses, etc., and complete the request.

Bonus: A line of credit in your portfolio

Typical interest rate: 2.40% to 3.65%, according to Wealthfront

Who can use one? Investors with a large portfolio and net worth. Minimum portfolio requirements vary by company.

Another way to borrow money is with a portfolio line of credit, also known as a margin loan. “Anyone who has after-tax money in an investment portfolio can use a portfolio line of credit,” says Monica Sipes, financial planner at Exencial Wealth Advisors.

However, there is a catch: you need to have a large investment portfolio to profit from it. This type of loan works by allowing the bank to lend out of your wallet. Wealthfront requires the client to have a portfolio valued at over $ 25,000, for example. TD Ameritrade needs a net worth of $ 750,000 to be able to borrow, according to financial planner Levi Sanchez. “I would recommend them more for a higher net worth client,” he says.

“The good thing about these types of loans is that they are usually only interest-bearing, which gives the borrower a lot of power in knowing when to pay back,” Sipes adds. “They have very aggressive interest rates right now, which means they’re cheap.” Plus, portfolio lines of credit are available quite quickly, as there is much less paperwork to do than a loan or other lines of credit.

How to apply: Wealthfront online banking service offers these portfolio lines of credit and allows investors to borrow up to 30% of their taxable account balance. Interest rates are low: Wealthfront charges interest rates between 2.40% and 3.65%. They are also available through other investment platforms and banks, such as Bank of America and Morgan Stanley.

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