A sudden cash crunch can throw your life out of gear. There are many options available in the financial market that can provide a quick-fix during a crunch. Here we’ll weigh some borrowing options for you to help you choose one and keep you from undue financial stress. Do remember that before you borrow, you must have a repayment plan which covers not just the principal borrowed but also the applicable interest rate and applicable charges.
This is a general purpose loan that can be availed from banks, NBFCs or other regulated lenders. The annual interest applicable on these loans vary from around 11% to 25%. If you’re a salaried individual in urgent need of a loan, this can be your go-to option, provided you meet the lender’s eligibility criteria. You need to provide bank statements, PAN, salary slips, tax statements, income and ID proofs to avail a personal loan. A good credit score also helps getting good loan deals.
A great option for salaried individuals as the cash can instantly be availed by the borrower. This is a version of the personal loan. It is sanctioned basis an individual’s income and credit profile. Since the duration of the loan is short, the interest charged may be higher than the typical personal loan. For small borrowings, this may be a better option than a personal loan. The documentation requirements will be similar to that of a personal loan application, but payday loans may have more relaxed norms in terms of credit score requirements.
This is a viable alternative that usually requires lesser documentation, is less reliant on credit score and most importantly, the interest rates are lesser than a personal loan. You just need to pledge your gold (physical jewellery, coins, biscuits or bars) against which you’ll instantly get a loan. However, do note that the pledged gold must be 18 carats and above and fluctuations in gold prices can affect the loan to value (LTV) ratio.
Credit Card-Linked Pre-approved Loan
You can leverage your existing relationships with banks or credit card companies to get a loan. Based on your transaction history, the bank or card company may have created a loan offering for you which you can avail with minimal paperwork and waiting period. Don’t take this option before you’re compared it with options, because it is possible you may get a better-priced loan elsewhere.
Cash Through Credit Card
This should be your very last option due to the high interest rate and charges applicable. Using your credit card to withdraw cash from an ATM while facing a cash crunch might appear to be a convenient option. However, this is typically more expensive than a personal loan. Credit card cash withdrawals do not come with the usual 50-days interest-free period. The interest on credit card cash advances is charged from the very day of withdrawal until full repayment. Additionally, there is a separate cash advance fee. Avoid this option, unless it’s an absolute necessity that can’t be avoided.
Finally, all types of loans (unless it’s a gift from a family member) will involve interest and charges. So get complete clarity on the applicable interest, processing fee, prepayment fee, the EMI size, and any other applicable fees. Most importantly, evaluate the affordability of the repayment instalments before signing up for one. Missing out on repayments may lead to debt accumulation, a damaged credit score and psychological stress.
The best strategy to tackle a cash crunch is to remain financially prepared. Have an emergency fund worth at least 3-6 times your currently monthly income parked in a fixed deposit.
The writer is CEO, BankBazaar.com