Do you know how much cash is tied up in your stuff? Probably not, but the likely answer is that it's more than you realize. Your home, your car, your jewelry and other items are sitting there waiting to be converted to cash. Here are four ways you can tap into those assets.
1. An Equity Stake in Your Home
Take Point Digital Finance, for example. This Silicon Valley startup makes loans to homeowners in exchange for an equity stake in their home. Imagine that you were looking to make improvements on your home, send your child to college debt free, or make some other big purchase. Next, imagine that you didn’t qualify for a home-equity loan or you just didn’t want to add a payment to your monthly budget.
If your home is worth $500,000, Point would offer you a payout of $25,000 to $50,000 in exchange for owning 5% to 10% of your home. Then, when you sell your home (which must happen within 10 years of striking this deal), Point cashes in on the price appreciation along with some other fees, including the escrow fee and Point’s processing fee of 3%.
2. Future Freelance Fees
If you’re a freelancer or own your business, you know that clients and customers aren’t in a big hurry to pay, but that doesn’t stop the bill collectors from demanding payment. San Francisco startup Qwil will pay you for the work you’ve done for your customers before your customers pay you. The company charges a fee of 0.5% to 5% of the loan and contacts your clients to make sure they actually owe you the money. Not a bad deal compared to payday loans.
3. Vacation Day Loans
Yes, it’s true that you can borrow against your unused vacation days. HoneyBee, a Fintech startup founded in 2016, makes loans against a person’s unused paid time off. The company usually makes loans of $700 and under and uses a person’s paid time off as collateral. As payments are made, the vacation days are returned. HoneyBee, based in San Francisco, verifies the amount of paid time off you have with your employer and charges a service fee equal to a 20% to 36% annual percentage rate (APR).
4. Cash from Your Car
Would you risk losing your car in exchange for a short-term loan? Florida-based Finova Financial is betting that you and others will. The company usually makes loans of around $1,500 to $2,000 in exchange for a lien on your car.
Sound kind of like a title loan? Finova touts benefits like the 30% maximum APR, 12 months to pay off the loan and no prepayment penalty. Compare those terms to car title loans that typically have APRs of 300% and only give borrowers 30 days to make payments. (See also: Are Car Title Loans Ever a Good Idea?)
A Good Idea?
All these companies represent new ways to borrow money. Customers can head to the company’s website, complete some short forms and usually have the money within hours or one day at the most. Many of the websites talk about how these are more responsible ways to borrow, and may have language saying that they’ll work with the borrower if he or she falls behind in payments.
But experts argue that, at their core, these are still loans against some of your most valuable assets and, when compared to more traditional forms of finance, not very good deals. Remember Point Digital Finance? Although you’re not making payments, once the company collects on the equity stake in your home you may have paid around a 7% to 11% APR for the loan – much higher than the 3% to 5% you could pay for a traditional home-equity loan. (See: Home-Equity Loans: What You Need to Know and Home-Equity Loans: The Costs.)
The Bottom Line
Borrowing money is a bet against your future ability to pay back the loan. Because you don’t know what your future holds, it’s almost always a better idea to save for future purchases instead of borrowing for them. The price of the purchase is also lower. However, if you do need a loan, especially for a small amount, some of these unorthodox methods might be worth looking into.
Here are five ways to make your home renovation worth the money and effort you put into it.
Here's a look at the differences between these types of charitable organizations.
YouTube's Partner Program helps users earn money through their channels. Find out how.
In spite of the rewards going public can bring, some companies prefer to remain private, and they are very successful in this.
Cyber Monday is becoming more popular than Black Friday. Here's why.