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Best and Worst options to borrow money - Title loans 2nd from the bottom
#1
Fool.com lists The best and worst ways to borrow money which says:

Quote:Four factors you'll want to consider are: the initial cost of borrowing; convenience and timeliness; the interest on the loan; and the risks you're taking on. Options to compare include:
  • Credit cards: If you have a credit card, borrowing is fairly effortless. That convenience comes at a price, however, as you'll pay an average interest rate of 15.59%, according to CreditCards.com. If you're going to carry a balance for a long time, those high interest makes credit cards a less-than-ideal option. On the other hand, credit cards are unsecured debt -- there's no collateral, so your assets aren't seriously at risk in case of nonpayment. One caveat: Opening a balance transfer card with 0% interest can work as part of a debt repayment plan. You'll pay a small fee -- usually around 3% -- to transfer other, higher-interest debt to the new card, and pay no interest on it for around a year, giving you time to pay it down.

  • Personal loans: Banks, credit unions, and other financial institutions make personal loans available with either no fees or relatively low application or origination fees. Interest rates are lower than credit cards at around 10.3% to 12.5% for those with excellent credit, but higher than other options such as home equity loans. Some personal loans offer fixed rates, but others are variable, so there's a chance your interest -- and your payments -- could increase. Because personal loans are unsecured, the risk to your home and assets is low in case of nonpayment. Repayment terms vary by loan, but you can often stretch out repayment for years.

  • Home equity loans: Home equity loans allow you borrow a lump sum against the value of your house. Interest rates are relatively low -- around 5.31% this month -- but the initial costs can be high. Home equity loans also require you to actually have equity in your home, and the risk level is high because if you default, the lender could foreclose on your home.

  • Home equity lines of credit (HELOC): Home equity lines of credit also involve borrowing against your home's equity, but you don't take a lump sum. Instead, you're approved for a line of credit to use as needed, and will be required to repay the entire amount you borrow at the end of a designated period. There are often fees and closing costs, and while interest rates on whatever debt you incur are around 5.29% as of this month,, HELOCS often have variable rates, so the rate you pay could end up higher. Because your house is collateral, the risk level is also high.

  • 401(k) loans: Borrowing from your 401(k) may seem like a great solution to your cash flow issues since you pay the interest to yourself. But there's a huge risk. If you leave your job, you either have to pay the entire loan back right away, or take a huge tax penalty. In fact, tax penalties hit if you don't pay the loan back on time for any reason. Moreover, you're jeopardizing your retirement security and losing tax benefits, because you'll repay your loan with after-tax funds, but that money is treated the same way as your tax-deferred contributions when you withdraw it in retirement.

  • Cash advances: Credit cards lenders will also loan you cash to pay for things you can't charge. The interest rates on those cash advances are usually exorbitant, with median rates of 24.24%, according to CreditCards.com. This option should be considered one of your last resorts, something to consider only when you've exhausted nearly all other avenues for borrowing.

  • Car title loans: These are short-term loans that -- as the name suggests -- use your car as collateral. The amount you can borrow is based on the vehicle's value, and the lender will take your car if you don't repay them in a timely manner, so the risk is high. Interest rates and fees are often exorbitant -- the FTC warns that you can expect a triple-digit APR -- and you may be required to pay for costly add-ons like a roadside assistance plan. Despite their high costs, people turn to car title loans if they have no credit cards and cannot get approved for conventional loans.

  • Payday loans: These are secured by personal checks or bank accounts. The borrower writes a post-dated check or provides their bank account information to the lender in exchange for a short-term loan. The check is for the amount of the loan, plus a fee. The lender gives you money immediately and agrees not to cash the check until your next payday, when you will, in theory, have the cash to cover it. The annual percentage rates (APR) on such loans can be more than 300%, so they're a terrible option used most often by people with no other access to credit.

It's interesting that they include borrowing money from your 401(k) as a borrowing option. I would not have considered that an "option"
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#2
I prefer non-collateral personal loans over ones that require equity on real property. While I have all the intentions to settle the debt in full, I don't have full control over the future. I don't want to risk my home just to obtain a lower interest loan. The interest rate may be higher on personal loans but they also involve less documentation and less processing time. In some cases, with an excellent credit rating, interest rates between collateral and non-collateral loans may not differ much.

Cash advances from credit cards can work for people who run into a financial emergency that can't wait for paper works or approval to get through. In such cases, there will be a transaction charge and the cash advance will usually be charged a higher interest rate than usual purchases. The cardholder can pay the debt quickly by transferring the amount to a lower interest loan later.

I would leave the 401(k) alone not just because it is set aside for retirement but also because it can mean a lot of complications where the fund owner can end up paying huge penalties.
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#3
I agree. The 401(k) should never be used to pay off any bills. Too many penalties to pay.
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#4
The best type of loans which i preferred is the credit cards. The money is liquid, you can use anytime in need, though you have to incurred a bit of high charges but it helps during emergencies. No collaterals to be compromise just in case of missed. Unlike other loans it will take time to avail and many requirements to comply. And definitely NO for the 401(k). I will not compromise everything i have.
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#5
Sharing this article from frugal for less.
The Best and Worst Ways to Borrow Money
By Steve Gillman
Apr 23, 2017
Psychology of Money
Introduction
Going into debt is not necessarily a bad thing. In fact, it can be a great idea. It all depends on your reason for borrowing and on how you borrow. We’ll get back to the how, but let’s briefly look at the reasons you might borrow money.

When explaining good debt” and “bad debt, experts point out that the latter makes you poorer. For example, when you borrow for a vacation, or get a car loan, or finance consumer items like furniture, you’re worse off financially. The debt load alone can be a problem, and because of interest charges you pay more for everything you buy on credit.


So what is good debt? Author Robert Kiyosaki says the common advice to “get out of debt” is a lie “perpetrated on the poor and middle class by the rich.” He points out that, unlike bad debt, which buys liabilities, good debt buys income-producing assets. But perhaps that’s too simplistic. Here are three good reasons to borrow:

Borrow to Make Money
Borrow to Save Money
Borrow to Resolve an Emergency
The first reason is easy enough to understand. Debt that starts a successful business, or buys income-producing real estate can certainly make you richer. Add to that your student loan debt, at least if the college degree it buys will increase your lifetime earnings. Even a car loan might be good debt, if you have no way to pay cash and no other way to get to work.


Debt that saves money can also be called “good.” For example, although Kiyosaki says your home is not an asset, it can cost less than renting, even with mortgage payments. Borrowing to install solar panels makes sense if the savings are greater than the cost, including interest charges. Just about any debt that costs less than it saves can be called good debt.

The third reason can be debated. Most “emergencies” can be planned for in theory. For example, since you know a heater will die someday, and probably in the middle of winter, you could save for that eventuality instead of going into debt when it happens. On the other hand, if you borrow for a an unexpected life-saving surgery for a loved one, it seems appropriate to call that “good debt” (or at least necessary debt).



 
So there are some bad and some good reasons to go into debt. But how you borrow also makes a big difference in the results you get. So let’s look at some of the best ways and worst ways to borrow.

Worst Ways to Borrow Money

Okay, you need to borrow to make money, save money, or for an emergency. But before we look at the best ways to do that, here are some of the options you should probably avoid.

A Peer-to-Peer Loan
Borrowing money on social-lending websites like Lending Club and Prosper is included here and on the list of the best ways to borrow because the reason for the loan matters. Interest rates are low only if you have a great credit score, and loan origination fees add up to 5%. For most “good debt” purposes you’ll do better borrowing elsewhere.

A Credit Card Convenience Check

CreditCards.com points out that credit card convenience checks are a form of cash advance, and so come with high costs. But since some of them offer low fees and even 0% interest for a set period of time, this can be inexpensive short-term debt, as long as you pay off the balance before the teaser rate expires. If not, you’ll soon be paying big interest charges.

A Credit Card
The average interest rate on credit card purchases is around 15%. Since there are no safe investments that earn more than that (and credit cards generally can’t be used to buy investments anyhow), this is almost always a bad way to go into debt. But not as bad as…

A Regular Cash Advance
Unlike with some convenience check offers, you pay top rates when you go for a regular credit card cash advance. The average interest rate on a cash advance is 23.53%, about 8% higher than the rate on purchases. Also, you typically pay a 5% fee up front.

A Pawn Shop Loan
Credit card and cash advance interest rates are bad, but not nearly as bad as those at pawn shops. According to Nolo.com some pawn shops charge interest rates as high as 240% on an annualized basis. Rather than borrowing against your things, you’re probably better off just selling whatever you no longer need.

A Payday Loan

The Consumer Financial Protection Bureau says, “A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400%.” That makes this one of the worst ways to borrow for any purpose.

Best Ways to Borrow Money
Now that you have been warned away from the more questionable ways to borrow, here are some better options.

A Mortgage Loan
Mortgage loans have some of the lowest interest rates out there. Of course it’s only “good debt” if it makes you richer, and betting on appreciation is speculative, so you might want to buy a home with total expenses that are lower than what your rent would be.

If you already have a home there are several ways to tap into your home equity. These include a home equity line of credit, a second mortgage, and refinancing. They each have advantages and disadvantages, but if you have good credit the interest rates in each case should be low enough to use this kind of debt for profitable investing.

Interest on your home mortgage loan is tax-deductible, which further lowers the cost of this debt. You may also get a tax break on other mortgage debt. According to the IRS, “The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes.”

Of course anytime you have a mortgage loan on a rental house the interest is a tax-deductible expense. And refinancing a rental property can be a good way to borrow money for additional investments, in part because all the loan costs are tax deductible.

A Peer-to-Peer Loan
Sometimes borrowing through social lending websites like Lending Club or Prosper makes sense. One example is when you can consolidate higher-interest debt at a lower rate. Just be sure that you’ll save money. It’s easy to forget about loan fees, and even easier to forget that you don’t necessarily save money paying a lower interest rate if you end up paying for ten years instead of five.

It also makes sense to use peer-to-peer loans for starting or expanding a business. Use their regular platforms if you’re just starting or, to expand (if you have two years in business), try Lending Club’s small business loans. You can borrow up to $100,000 without collateral, at fixed rates starting below 6% (plus an origination fee).

A Small Business Administration Loan
If you’re borrowing to start or expand a business and can’t get a traditional bank loan, you also might qualify for an SBA loan. Some of their programs guarantee loans through banks, but they have other options, including a microloan program for smaller amounts.

The nice thing about borrowing in this way, apart from being potentially more affordable, is that the process requires you to have (and helps you to have) a decent plan. That can force you to fully prepare, and so keep you out of trouble.

A Student Loan
Borrowing for college can result in a lifetime of higher income. On the other hand, the average student loan debt for a class of 2016 graduate is over $37,000. Then there are the many student debt horror stories that make it clear how much trouble you can get into. So you might want to aim for one of the degrees with the best return on investment.

You may want to stick with federal student loans. Not only can you get a lower interest rate, but if you get into financial trouble down the road there are loan forgiveness options.

A 401(k) Loan
When does it make sense to borrow from your 401(k) retirement plan? When you have a sure plan for repayment and you would otherwise borrow the money elsewhere. Since any “interest” you pay goes to your own retirement plan, these loans, if done right, are essentially interest-free. If done wrong, you might have to get a job to cover the bill when you’re eighty years old. So be careful.

A Personal Loan
Why not borrow from family or friends? If you have a good purpose for the debt, and a solid plan for repayment, a personal loan can benefit you and the lender.

Your friend or sister may have to pay taxes based on the Applicable Federal Rate whether or not they charge interest, so be fair and let your lender make a profit. Business is business, and you aren’t going to borrow just for a “bad debt” purpose like a vacation or big TV, right?
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#6
Definitely, a very good article. It is very true that people accumulate debts because of buying or paying for things that are not really needed and does not give you an income in return. They loan money to travel here and there, buy this and that, and acquire things that are just luxuries of life. Now I know these are Bad Debts, and I should avoid them.

Meanwhile, I think when I loaned money last time, it was a good debt because it was for my sister's placement fee. Now, she's abroad and earning more than I could earn and is helping our family. In short, it was sort of investment.
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#7
This is all right. For me the best way to borrow money is to use the money that you borrowed in business so it can be doubled or tripled. And the worst way to borrow money is when you still have to pay the money that you borrowed last time but still you borrow another one.
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#8
I recently formed this same opinion. You should only borrow money to buy something that will generate income. For example: get a loan for a car and then drive for Uber to make money to pay for the car.
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#9
(01-03-2018, 06:56 PM)Michael Puttman Wrote: I recently formed this same opinion. You should only borrow money to buy something that will generate income. For example: get a loan for a car and then drive for Uber to make money to pay for the car.

I agree with this one. My friend made a car loan he now has two cars. I asked him what is he going with two cars he said he's going to use it for Uber. He's now making big bucks for using it for Uber. Uber is a big help for those who wanted to earn income. Without cashing out big money you can make a loan and use it for business. But now Uber is suspended here for registering new members they needed to wait for further announcements.
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#10
Yes, unless you have an emergency or something that will make you money. It is best not to borrow money. If you wish to fix up your home for sale, you can also use state or government options that earmark funds for this. These are very low cost options, but it is sometimes difficult to get approved.
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