If you've recently fallen behind on some bills and are looking for a quick way to catch up, you may be looking into the world of short-term loans. If your credit isn't sterling, you might find yourself ineligible for many traditional bank options, such as a mortgage refinance or personal loan. What are your lending options when you just need quick cash -- without a thorough credit check or high fees? Read on to learn more about payday loans, pension advances, and 401(k) loans.
One of the most common sources of short-term cash is a payday advance. In this transaction, you'll either provide the lender with a post-dated check for more than the amount borrowed (this additional amount includes interest), or you'll sign a document granting the lender access to reclaim the funds from your bank account at the end of the loan period. After the loan period has ended, the lender will cash the check or draft the funds from your bank account.
If at any point you find yourself having trouble repaying the payday advance, you can apply to "roll over" the advance into another loan or extend the term of the loan. Although this option generally comes with additional interest and fees, it is often less expensive than paying a reconnect fee if your water or electricity is shut off or facing foreclosure proceedings if you miss a mortgage payment. Be aware that new regulations from the Consumer Financial Protection Bureau (CFPB) are seeking to reduce this practice by requiring a two-cycle "cooling off" period after a loan has been rolled over for three payment cycles. Click here to investigate this option.
In the past few decades, pensions were a crucial part of the retirement toolkit for many workers. Although the number of pensions offered continues to dwindle, those consumers who are eligible to receive a pension upon retirement may be able to apply for a pension advance to help bridge the gaps between paychecks.
These companies operate much like structured settlement lenders -- they'll provide you with cash in exchange for signing over your right to receive a portion (or even all) of your future pension. If your pension is on shaky grounds or you don't feel you'll live long enough to retire, this may be a great option to put some cash in your pocket today (rather than rely on continued pension funding and your continued health). To determine how much cash you'll receive, your pension will be valued like an annuity. The lenders will calculate what lump sum of cash -- invested today -- would provide you with a monthly income similar to the amount you're projected to receive from your pension.
This option may not be available for all pension holders -- if you're considering it, you may want to speak with your pension plan administrator to determine whether a pension advance is feasible for you.
If you don't have access to a pension, but do have a bit of cash squirreled away for retirement in your 401(k) plan, you may be able to access this money at a low interest rate. Many employers offer 401(k) loans to their employees, generally under more favorable terms than payday loans or pension advances.
However, these loans do come with some caveats. Generally, if you quit your job or are terminated from employment, you'll be required to repay the 401(k) loan in full within a fairly brief period of time. If you fail to do so, you could be hit with an early withdrawal penalty and taxes on the withdrawn amount. You may also be unable to increase your 401(k) contributions or change your holdings while you have an outstanding loan, which could limit your future investment options. If you'd like to explore the possibilities of a 401(k) loan, contact your plan administrator.