A car repair, medical bill, home expense, or temporary loss of income can leave a household searching for money quickly. During an emergency, it is tempting to choose the first source of cash available. Taking a few minutes to compare options can make a big difference.
Start by determining exactly how much money you need. Borrowing more than necessary means paying interest on money you may not actually need.
Next, compare available choices. Depending on your situation, possibilities could include savings, a personal installment loan, a credit-union product, a personal line of credit, or another form of credit. Each option can have different interest rates, repayment terms, and fees.
For a personal line of credit, the CFPB recommends reviewing the APR, whether the rate can change, access fees, annual fees, and late-payment charges.
Be especially careful with very short-term loans. The CFPB notes that payday-loan fees can translate into extremely high annual percentage rates, which is why comparing APRs across financing products is important.
After handling the immediate expense, consider slowly building an emergency fund. Even a small amount set aside regularly can reduce the need to borrow the next time an unexpected bill appears.
Getting funds quickly can be useful. Getting funds at a cost you understand and can afford is even better.
