Can You Cover Moving Expenses with Relocation Loans?
Relocating is expensive, time-consuming, and can be an incredibly stressful time for both you and your family. A standard move can include exorbitant costs for a moving company, or truck rental if you decide to do it yourself. That’s not counting the cost of packing materials, additional help, or closing out old bills before leaving.
If you’re moving across the country, you’ll need to plan for airline tickets, hotel stays, or gas if you’re renting a truck or driving your own vehicle. A long-distance move can require significant costs at your destination as well, in the form of utility and security deposits, or a host of other odds and ends involved with relocation.
Americans move less frequently now than they did years ago, and part of the reason for that is the cost associated with relocating. There are ways to help with the financial changes that a move can bring, and one of the options available is a relocation loan, also known as a moving loan.
What is a Relocation Loan?
A relocation loan is a loan product that allows you to handle moving expenses so you can get done what needs doing.
There are several types of relocation loans, and they’re different depending on the bank or financial institution offering them. Some might allow you to still close on a new home or put down a security deposit on an apartment as long as the start date for your new job is before your first payment is due on the loan.
For many banks, a relocation loan is simply a personal loan, and you use the proceeds for moving expenses. If you have solid credit, you may be able to borrow money in an unsecured loan to cover certain expenses. Every move is different, and you might have more or less expenses than someone else, or even a different situation than a previous move of your own.
If you aren’t exactly sporting a winning credit score you could still qualify for a secured loan by using something you own as collateral. If you have a paid off vehicle, for instance, some banks will offer you a personal loan using that vehicle as collateral. You could also do a cash-out refinance on an existing loan, if that option is available. Terms, rate, and payment amount can vary widely, so it’s best to check out several different lenders and see what they offer.
Is Relying on a Relocation Loan to Move a Good Idea?
Like anything else, a relocation loan has pros and cons. The question of whether one of these moving loans is right for you is wholly dependent on your personal situation and what your needs and financial capabilities are.
There are several advantages to getting a relocation loan. If you don’t have the money up front to move, you can get moving sooner with a relocation loan instead of having to wait until you have the funds. You can also make the move easier by paying for things that you would have had to do on your own, such as packing your belongings or moving them yourself. You may also be able to pay old bills, giving you a fresh start at your new location, or even ship your vehicle instead of having to drive it to the new city. Having enough money to move comfortably can make the difference between a horrible experience and a simply stressful one.
The benefits of getting a loan, however, don’t eliminate the drawbacks – and a moving loan has several of those as well. Getting a loan means taking on additional debt just as you are trying to establish yourself in a new location. You might also be looking at a new mortgage, and depending on the amount of the loan, it could cause problems with underwriting if it pushes your debt-to-income ratio higher than your mortgage lender would like.
As with any loan, interest means you’ll be paying back more than you borrowed, and even if you are able to pay the loan back early you might be dealing with prepayment penalties. Different locations mean different costs of living, and even if you’re going to be making more at your new job, an expensive location can mean less money available to pay off your relocation loan.
There’s no black and white answer to the question of whether a relocation loan is a good idea. Take the time to plan out your moving expenses, expected income, and cost of living in the new location, and then use those answers to help decide if a relocation loan is right for you.
