Home Equity Line of Credit
Because the bank can count on your property as collateral, the interest on HELOCs is usually considerably lower than that for unsecured lines of credit, though a bit higher than mortgage rates. HELOCs also allow you to borrow large amounts of money. If you have, say, $100,000 of equity in your home, you might be able to get a HELOC with a credit limit of close to that amount. That, and the low borrowing costs, make HELOCs a fan favourite among Canadians looking to finance home renovation projects. But HELOCs can be used for anything, not just home-related expenses.
If you own a home and already have a HELOC already in place, that should probably be your go-to option. But HELOCs pose some of the same risks that unsecured lines of credit do: They have variable interest rates and they easily turn into a debt trap if you make a habit of tapping them to cover expenses for which you didn’t budget. HELOCs have a particularly bad track-record when it comes to debt consolidation. Homeowners who consolidate, say, expensive credit card debt into one low-interest HELOC often wind up using their line of credit just like they used their credit card, according to the Credit Counselling Society.
For smaller emergency expenses, such a pricey car repair, you could ask for a higher the limit on your credit card or apply for a new one. If you have a good credit score, either process will be relatively quick, Gowling said. The advantage of credit cards is that if you manage to repay your balance in full by the due date, you won’t pay any interest, which means you get to borrow money for free. The catch, of course, is that interest rates, when they do kick in, are very high – typically around 20 per cent and often higher. And if your credit card balance swells to a point where you can only afford minimum payments, it payday loans in Arkansas will become very difficult to pay off that debt.
Unlike lines of credit, term loans have a set repayment term and interest rate. “The interest rate may be similar to an unsecured line of credit and is a good option if you have a good credit rating and need a larger amount of money and longer repayment term,” Hannah said.
Cash advance overdraft
This is the cash banks will temporarily put up for you if your chequing account is overdrawn and you have so-called overdraft protection. The amount generally ranges from a few hundred to a few thousand dollars.
“This is a good option if this is a short-term problem for a relatively small amount of money and you are able to repay the amount borrowed within a couple of months,” Hannah said.
You can also get a cash advance using your credit card, either at an ATM or at your financial institution. You’ll be borrowing against your credit limit, but the costs will be steeper. For one, there is no interest-free grace period: Interest will accrue from the date you get the cash advance until you’ve paid it back. Also, the interest rate on cash advances is usually higher than that for regular purchases.
Got a boat or trailer you rarely use? Consider offloading those assets to get the cash you need, Hannah said. Having to sell property might be psychologically unpleasant, but it’s preferable to getting into a debt you’ll struggle to repay or putting a significant or permanent dent in your retirement savings.