As a part of your debt reduction plan, as well as exercising some self-improved budgeting skills, you may also find it necessary to take on some additional credit. This perhaps means that you might be looking into various loan options, and which ones will save you the most money – as well as which loan providers will be more willing to work with you.
There are in fact many different avenues for obtaining credit – and just as the benefits of each option may be greater, there also may be some disadvantages that you will want to consider.
Banks
Obtaining a loan through a bank is a typical setting that many borrowers look to. If you have good credit you are more likely to get a better interest rate from a bank and this can translate into having to pay a lot less in overall loan fees. On the other hand, if you have poor credit, then obtaining a loan through a bank can be more difficult and in some instances this can even mean you may be denied a loan altogether. Alternatively if you do have a lower credit score and your financial institution does grant a loan, then this is likely at a higher interest rate and can prove to be more expensive for you. With fluctuating interest rates, this level of unpredictability can at times be a concern for many loan borrowers.
Ultimately my husband and I were able to get the loans we’ve needed in the past through various financial institutions – however the interest rates have in fact been quite a bit higher and it was definitely more of a challenge to pay back. This is why I wanted to investigate some other loan provider options and see what other avenues may be more beneficial for us and our financial situation.
Credit Unions
Credit Unions on the other hand, can offer some different loan options that traditional banks can not. As a credit union member, there can definitely be some valuable perks.
Getting a loan through a union, for example can mean a more affordable loan arrangements that what a bank will offer. Some of these affordable perks include, lower interest rates and fees and if a consumer is looking to transfer a higher interest rate loan, from a credit card, for example, they can do so through a credit union loan quite easily. These alternative lenders can offer flexible terms and these lower interest loans can work for individuals who are not able to pay off their balance each month. In turn, the savings that you can accumulate each year can add up and can have a positive impact on your finances.
As a non-profit firm, however credit unions do have their membership requirements and so this may not be an option for everyone. In order to join, there are eligibility requirements that may include, where you live, your job, your school, your place or worship, etc. Additionally, credit unions offer a lower variety of financial products than banks do and while these locations do offer personal-able client services, their online components are limited and therefore managing your loan through these firms may not provide the convenience that financial institutions can offer.
As a result, I think I would consider this option as the lower fees and interest rates do seem highly favourable. I would have to look into whether there was a credit union that we were eligible for and if we could secure a financial loan that was suitable for us.
Payday Loan Providers
The other loan option I was interested in looking into is of the payday loan variety. At first glance payday loans seem to offer some appealing features, so let’s examine them a little more closely and find out for sure if it might be a suitable option.
One advantage of a payday loan that makes it seem a valuable option, is that the process is fast and easy and there are not a lot of initial hoops you have to jump through to be approved. Additionally, there are a lot of payday loan business across the country and in your area to choose from and they are willing to work with you as long as you can meet the initial payment requirement. So not only do payday loans seem easily obtainable, you can also get the loan you need very quickly – typically within a day or so – so you can use the funds right away.
The cons on the other hand, do not look so appealing and could perhaps be a huge deterrent of this type of loan. First it is important to mention that these loans are meant to serve the purpose of a short term loan option. Therefore, if you are looking for a longer term loan or you are unable to pay back your loan within approximately a 2 week period, then you are subject to what are often referred to as ‘hidden fees’. These fees can quickly add up if you don’t pay back your loan in full within the prearranged timeframe and start being added on to your loan immediately.
Also important to mention is that with this loan, you can only secure a smaller loan size, on average perhaps about $500-$1000 dollars at a time – making this more of an emergency loan option for many people. For a loan of $100, you can expect to pay about $21 dollars in fees and this of course increases as the loan size increases.
With a small loan arrangement being the only options on the table, some times people end up having to borrow more money and then end up owing even more in loan balance and in fees. So unless you are certain you can repay the loan within the short term period, then a payday loan can prove to be more expensive than it may actually be worth.
This type of loan actually made me quite nervous to think about and as a result I would also conclude that unless it is for an emergency purchase or a loan to tie us over until our next paycheque (as they are also purposefully-designed), I think I would avoid this loan unless otherwise necessary. Going the route of a bank and a credit union still seems to be the better of the three options for our family and for the specific loan requirements we are more likely to have at this time as well as in the future.
