How to pay for an emergency
Unexpected expenses, by nature, can come out of nowhere. Your check engine light comes on, and your car demands you put another thousand dollars into keeping it on the road. That cough that just won’t go away turns out to be more serious than you thought. Your air conditioner gives up during the longest heatwave you can remember. No matter what causes these personal catastrophes, they all have one thing in common: They’re expensive. How are you going to pay for an emergency?
As a credit union member, you have borrowing options. Two popular choices for emergency funding are personal loans and credit cards. Here are several pros and cons to each.
1. Limits
Credit cards have credit limits in the thousands, enough to pay for a minor emergency. In addition, the value of credit cards is their convenience; there’s no need for a new loan each time you incur an expense.
However, many people don’t have sufficient credit to cover major financial emergencies and instead choose to utilize a personal loan.
Your personal loan approval amount depends on several factors: income, credit score, and other assets. For borrowers with good credit history and a solid ability to repay, these loans could be $50,000, enough for unexpected severe expenses.
2. Repayment options
Credit card repayments are made monthly. However, there’s a minimum payment and no fixed term to repayment; if you continue charging and only pay the minimum, paying off your loan can take forever.
In contrast, a personal loan includes a fixed monthly fee that lets you repay the loan in a set amount of time. In addition, it’s amortized, so you’re making equal payments of both interest and principal over the loan’s life. There’s also no penalty for early repayment.
3. Usability
Credit cards only work at a merchant terminal; they’re challenging to use for paying back friends.
A personal loan is deposited directly into your draft account. You can withdraw it as cash, write checks or use auto draft features.
If you’re negotiating a reduced price for a significant expense, many businesses offer a cash discount – they pay for processing fees and prefer cash. For example, if you’re paying a hospital, they may also accept a lower fee if you pay cash.
4. Interest rates
Credit card interest rates can be high; the global average is 15%. In addition, some credit cards fluctuate their interest rates based on the prime interest rate, and they can alter your rate if your credit score changes dramatically, making it difficult to plan your financial future.
A personal loan has a fixed interest rate that never increases if you don’t miss a payment. You can make a future budget that involves paying a fixed amount over approximately five years.
Interest rates on personal loans are usually lower than on credit cards. For people with average credit, interest rates can be 5% lower; it can be even lower for those with better credit.
As a member of Elevate Credit Union, you have access to competitive rates for personal loans. If you find yourself in an emergency and need a way to pay, we can help. Call, click or stop by today! You do not have to take on a credit card with a super high-interest rate. Always check your local credit union first!
