We explain the pros and cons of your options
As our nation strives to stay ahead of the coronavirus pandemic, many states, including New Jersey, are under stay-at-home orders. With the shutdown of countless businesses, an estimated 1 in 10 Americans finds themselves out of a job, and many in our own community now struggle to pay their daily living expenses. If you’re looking for ways to borrow money to get you through this crisis, you’re not alone. Greater Alliance is here for you in these times of uncertainty.
As you know, there are several different ways to borrow money, and not all loans are created equal. You may be wondering, how do personal loans work? Or, should I take make a cash advance on my credit card? We wanted to share some of the best ways to borrow money (as well as which loans to avoid), so that you can make an informed decision.
Different ways to borrow money
You may have heard of payday loans or cash advance loans. These loans are generally short-term (about two weeks) and are designed to help cover small expenses quickly. Simply write a post-dated check and the payday lender pays you now but holds your check until your next payday. This type of lending is either banned or heavily regulated in some states, including New Jersey., And, for good reason. The average amount of a payday loan is $375, yet only about 14% of borrowers can actually pay one back. That’s because the typical annual percentage rate (APR), or the rate you pay to borrow the money, averages 400%. The benefit of a payday loan is that it provides cash quickly without taking credit history into consideration. The cost far outweighs the benefit, and we recommend you avoid these types of loans.
Credit card cash advance
Credit card cash advances are another fast way to borrow money. Simply visit an ATM, swipe your card, enter your PIN and you have cash in hand. It’s much like taking money out of your bank account with your debit card. However, unlike your debit card, credit card cash advances come at a high cost. For each advance, you pay a transaction fee (usually 3% to 5% of the amount borrowed), plus interest. Credit card interest rates are typically high (averaging 17% APR), but cash advance rates are even higher (often as much as 25% APR). The benefit of a credit card cash advance is that it is quick and easy. The con is the expense.
Here’s a scenario: If you advance $1,000, assuming a 5% transaction fee and a 25% APR, and pay a minimum monthly payment of $35, you’ll pay $665 in interest and fees over the next four years.
A personal loan can be used for just about anything—from paying off credit cards to consolidating debt to covering emergency expenses. And it’s far more cost-effective than a cash advance loan. At Greater Alliance, we are offering the option to skip a payment, if needed, due to financial hardship during the coronavirus crisis. You can apply online or over the phone at 201-599-5500, ext. 290, and close on the loan electronically—no need to personally visit a branch.
How do personal loans work?
Like most loans, you borrow a set amount of money that is paid back in monthly installments (usually over a period two to five years).
Greater Alliance offers two types of personal loans: Secured and unsecured.
- A secured personal loan is backed by some sort of collateral, like your automobile or credit union share certificate account. A benefit of a secured loan is that it has a lower interest rate than an unsecured loan, however, if you default on a secured loan, you could lose whatever asset is tied to your loan.
- An unsecured personal loan doesn’t require collateral, but it comes with a slightly higher interest rate. Both secured and unsecured personal loans are much better ways to borrow money than cash advance loans as the amount charged for interest is far less and there are no fees unless you miss a payment.
COVID-19 relief loan
If you or someone you know has been adversely affected by the recent pandemic, you may qualify for our COVID-19 relief loan. To be eligible, you must be able to show reduced income due to one of the following circumstances.
- COVID-19 illness
- Reduction in hours
- Missed pay to care for a family member
Taking care of our members is priority one. This special relief loan has rates as low as 6.99% APR plus a 90-day no pay option. More information about the COVID-19 loan can be found on our website.
We’re here to help
Greater Alliance wants to show you the best ways to borrow money. Plus, if you add our debt protection to your loan, you would be covered in certain circumstances. For more on our COVID relief loan or other ways to borrow money, contact one of our helpful branch representatives.
We’re in this together.