Running a little low on cash? We've all been there. But what's the best way to get your hands on some extra money? Tonight, Contact 13 looks at your best options when you need a loan.
Life is full of surprises. Medical bills, your car breaks down, or maybe you need a plumber. Sometimes the unexpected can really take a bite out of your wallet. But when you just don't have the money, where should you go?
"If you have a loan provision on your 401k, that is probably going to be your best source," says Las Vegas Financial Advisor Ken Himmler.
He says avoid using credit cards and payday loans. The main problem is the sky-high interest rate, which can reach 25% or more.
"If you owed let's say $10,000 on your credit card at 24% interest, that's $2,400 per year in interest, $200 per month that you're paying in interest that you will never pay back," says Ken.
But the interest rate for a loan from your retirement plan is typically only about 5%. So you'll pay back $500, but that money actually goes back into your account.
"And if you have any kind of debts such as a car loan, a credit card, short term loan, anything that you could keep the interest yourself as opposed to giving it to a financial institution, you want to use your 401k first," says Ken.
You're usually allowed to borrow up to 50% of your account balance. It's probably going to cost you $50-$100 to create the loan, but there aren't any loan origination fees. There are also better options than visiting your bank, if you're a small business owner. Ken says borrow from your IRA.
"You can be a realtor, you can be any kind of small business. You can now transfer that IRA into your business entity. It now becomes a profit sharing plan and you have the ability to borrow from it and pay the interest back to yourself," says Ken.
So here's the Contact 13 bottom line: no matter where you go for a loan, read the fine print. Make sure you understand the terms, and penalties if you're late, or miss a payment. And beware of loans advertising on the internet. The FTC warns, some online lenders have been known to use deceptive and illegal practices. For Contact 13, I'm Tricia Kean.