SUMMARY: From home equity to credit cards, here’s how the Credit Union can help you tap into funds need for a variety of uses

If you ever find yourself in need of a large amount of cash, such as $10,000 or more, there are several ways you may be able to get the money you need with the help of the Credit Union. Here are some methods for accessing cash quickly. 

Home Equity Line of Credit

You may be able to turn equity in your home into cash with a Home Equity Line of Credit (HELOC). This is similar to a home equity loan, but rather than a lump sum of money, you receive a line of credit you can draw upon as needed and spend however you like.

HELOCs may offer lower interest rates than other loans and you pay interest only on the money you borrow. You get up to 10 or 15 years to repay the loan. The Credit Union may offer you 0.25 percentage points off on the Annual Percentage Rate (APR) if you have multiple loans with them.

It’s important to note that your home acts as collateral, which puts puts it at risk if you can’t repay. HELOCs also involve fees, even if you never use the line of credit. Also, they may carry a variable interest rate, making it hard to predict your payment  

Cash-out Home Refinance

A cash-out refinance is a new mortgage that replaces your existing home loan. The amount of the loan is for more than you owe. You take the difference and can spend it on anything you wish. 

This cash source generally offers lower rates than HELOCS. You might get a lower rate than your current mortgage if rates are lower or your credit score has improved. Your monthly payment could go down under certain circumstances, such as if you extend the term of the loan.

Like HELOCs, however, a cash-out refi uses your home as collateral, raising the risk of home loss. Closing costs may be higher than with a HELOC. If you exchange a fixed-rate mortgage for a variable-rate mortgage, your payment may change as well  

Cash-out Auto Refinance

A cash-out auto refinancing loan is similar to a cash-out home refinancing loan. You replace the existing loan with a loan for a higher amount. You pocket the difference and can use it to pay unexpected expenses, consolidate loans or any other purpose.

This is a faster way to turn your vehicle’s equity into cash than by putting it up for sale. You also get to keep your vehicle. To start a cash-out auto refinance, all you need is your loan payoff amount and the Vehicle Identification Number (VIN). Interest rates may be lower than other cash sources. You may even reduce your current payment with a lower interest rate or by modifying loan terms.  

As with a home refinance, your car is the collateral, with the consequent risk of loss. You’ll be taking on more debt and, if you borrow too much, you may owe more than the car is worth. That could be a problem if it’s stolen or damaged.

Credit Cards and Convenience Checks

Credit card advances and convenience checks let you tap your line of credit for cash. You write a convenience check to yourself or make cash withdrawals from your credit card (up to $1,100 daily for up to 50% of your available credit).

These cash sources are quick and easy. You don’t need loan approval, and you don’t have to wait for cash. On the downside, interest rates can be higher than other loan sources. There’s also a daily limit credit card cash withdrawals as well as a transaction fee.

Share Certificate Loan

If you have a share certificate, you can borrow up to 90% of the full value. Not only won’t you owe early withdrawal penalties but the certificate will continue earning dividends. Your interest rate is often set at a couple of points higher than the share certificate rate. This is likely to be lower than other loans. A share certificate loan can also help you establish credit since approval is almost guaranteed. One limitation is that you can’t redeem the certificate until the loan is paid off.

Retirement Savings

Your 401(k) or other employer-sponsored retirement plan is designed for long-term savings, but in certain circumstances can be a source of cash. There are two ways to do this: withdrawal or a loan.

If you take out a 401(k) loan, you pay it back to the 401(k). You don’t need loan approval and the interest rate is likely lower than you could get elsewhere. The debt won’t appear on your credit report, there are no penalties or taxes, and you can use the money for anything. With a withdrawal, repayment is not required. If you don’t repay the loan in five years, the IRS treats it as a withdrawal and applies penalties and taxes. And if you leave your job, you may have to pay a loan back or be declared in default.

However, rules for tapping your 401(k) are complex and vary among different plans. Generally, if you withdraw before age 59 1/2, you may owe a 10% penalty unless you qualify for a hardship exception. You’ll also owe income taxes on the amount withdrawn. 

Individual Retirement Account

Unlike with a 401(k), you can’t borrow from your Individual Retirement Account (IRA) account. However, you can take an early withdrawal from it. Otherwise, these cash sources share some traits.

If you’re under age 59 1/2, for instance, you may owe taxes and penalties on IRA withdrawals. You may get an exception if you’re using the money for a first home, qualified education expenses, some medical bills, health insurance premiums if unemployed and birth or adoption costs.