If you have a low credit score, this makes it difficult to secure a loan when you find yourself short on cash. Fortunately, there are loan options available that either don't consider your credit report or use it minimally when deciding whether or not to approve a loan. Check out some alternatives that can help you get the cash you need the next time you find yourself facing unexpected expenses.
1. A Pawn Transaction
If you have items of value, such as electronics, jewelry, or tools, you can take these items to a pawn shop. A pawn shop will either purchase your item outright or offer you a loan that uses the item as collateral. This loan is known as a pawn transaction.
The pawn shop does not take into account your credit or your income when deciding how much money to loan you. Instead, it bases its offer solely on the value of the item. When you take out a pawn transaction, the pawn shop holds your item until you repay the loan in full. Loan terms vary based on your state, but they are usually for two or three months.
The interest rate for the pawn transaction also depends on your state. Expect to pay a 20 percent interest rate each month on your loan for a pawn transaction in Louisiana (this figure includes all interest and fees associated with the transaction). For example, if you take out a $300 loan, this means your monthly fees and interest come to approximately $60 each month. Assuming that you take the full three months to pay back the loan, you will need to pay $480 to get your item back.
If you cannot or do not repay your loan by the maturity date, the pawn shop sells your item. However, you have options if you don't have the funds to pay the loan off by the maturity date. Many pawn shops permit you to extend the term of the loan.
In fact, American Pawn lets its customers take an unlimited number of extensions on their loans. To qualify for an extension, we do ask that you pay some of the loan's interest.
2. 401(k) Loan
If you have a 401(k) that you use to save for retirement, the plan may permit you to borrow against the money in the account. A benefit of the 401(k) loan is that your credit is not used at all to grant loan approval. Many employers deduct your 401(k) loan payments directly from your paycheck.
However, if you lose your job before you repay your 401(k) loan, this loan alternative becomes very expensive. Many employers require employees who leave the company to repay their 401(k) loans within a certain period. If they don't, the loan counts as a pre-retirement distribution.
Distributions before retirement automatically incur a 10 percent penalty on your taxes. You also have to pay regular income taxes on the distribution.
Assume that you have a $5,000 outstanding 401(k) loan, and you lose your job. The 10 percent penalty alone will cost you an extra $500 on your taxes. If your tax rate is 15 percent, expect to pay additional taxes of $750, for a grand total of $1,250.
Many 401(k) plans limit the number of plans that investors may take against their accounts. If you already have an outstanding 401(k) loan, you may not be able to take out another until you repay your first loan.
3. Peer-to-Peer Loan
A peer-to-peer loan is a financial product that lets other people fund your loan request. In exchange for loaning their money, these individuals receive interest payments.
Peer-to-peer lenders do use your credit history when deciding the terms of your loan. However, they normally approve loan requests from individuals with damaged credit. These people have to pay higher interest rates than those with stronger credit histories.
One downside of a peer-to-peer loan is that there is no guarantee that investors will decide to fund your loan. Interest rates and fees may be expensive, and the company that facilitates the loan may limit how much you can borrow.
Need cash for unexpected bills or a weekend away? Contact American Pawn today to start your pawn transaction.