Line of credit
This can be approved in 24 hours, and "it offers you the biggest amount of flexibility," says Debbie Ehrstien, a financial planner for RBC Wealth Management in Calgary. With interest at five to eight per cent (it will be higher the worse your credit score is), it requires just a small monthly payment – as little as interest only. This will definitely help you when it comes to making payments on time, minimizing the potential for penalty due to late payments. The problem with that, says Wendy Dupuis, executive director at Financial Fitness Centre in Windsor, Ont., is that the debt can sit there for years. "If you don't make more than the interest payments, it can be really costly," she says.
Depending on your employer's policy, you may be able to arrange an advance, repaying the money through deductions from later paycheques. Just be sure you can survive those weeks after the emergency without full pay, warns Dupuis.
If you have a fully paid savings bond, you could cash it in early. You'll receive the interest you've earned up to that date, without penalty, but you'll have to claim it on your income tax. Don't cash in your RSP though, cautions Dupuis. Even if you're allowed to dip into it (many are locked in), you'll be charged for withdrawing early and be taxed on the money. "So it's almost a double whammy," she says.
Page 1 of 2 – Need more options for fast cash? Discover good options to consider and a couple to avoid on page 2.
Home equity line of credit
You'll have this option if you've paid off at least 20 per cent of your home. The interest rate is cheap – about 3.5 per cent, depending on the prime rate. "The advantage is that a larger amount of money might be available to you," says Dupuis. However, appraising the house and registering the lien will take a week or two and cost about $1,000 – a steep price when you're already dealing with a financial crisis. And keep in mind that if you can't repay the money, you could lose your home.
A loan is more structured, says Ehrstien. "You know exactly what your payments will be and that your loan will be paid off at a certain time." A loan typically lasts 60 to 72 months and has about an eight per cent interest rate. You can get the money the same day you apply, but you may need a cosigner or security (such as a vehicle) to be approved.
Options to avoid
Although getting a cash advance on your credit card is fast and convenient, you'll start paying about 20 per cent interest immediately. Watch out for payday loans, too. "They don't ask questions and they don't do credit checks, but you have to be sure that you read the fine print," says John Silver, executive director of Community Financial Counselling Services in Manitoba. These loans, which lend money to be returned upon receiving your next paycheque, charge up to 31 per cent interest, plus all kinds of additional fees.
Jill Buchner is a financially savvy copy editor in Toronto.
This story was originally titled "Fast Cash" in the April 2011 issue. Subscribe to Canadian Living today and never miss an issue!
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