It's finally happened: you've spent years working with the arts, or social services, or any number of organizations and you've just landed the new, next, almost ideal position. Time for a new apartment in your soon-to-be new city.
Problem is, with new hires, with small organizations, and even in the case of some larger ones, there's often no relocation allowance. You've got to finance the move to take the job, you've got to take the job to go forward in your career, but you haven't got the money in hand to make the move.
How can you make this happen?
One option is to borrow what you need to pay for the move. But you want to be smart about that. Let's take a look at loans for relocation and some strategies to take them in ways that won't break your budget going forward.
The Price of Relocation
The daunting math, early on, is figuring how much money it takes for the move.
The cost of relocation to a new city can top out the four-figure range, and you can absolutely land yourself in the five-figure spectrum, especially if you're bound for a high-priced locale such as New York or San Francisco.
Bill Mulholland, director of American Relocation Connections, said that the average cost of just shipping a household from one city to the next averaged $12,000 in 2012.
The good news is, it won't be that much in our model. We're talking apartments and the costs associated with moving from one to another. Still, if you need to come up with first, last, a security deposit, and a broker's fee for a new rental, you could be looking at as much as $7,000–$10,000 at the start (based on a major metropolitan rent of, say, $2,000–$3,000 per month).
Add in the cost of hiring movers — figure some $1,500 for an apartment, on the low end, depending on distance and how much stuff you're taking (and whether you're driving the moving truck yourself), and the numbers can add up quickly.
Borrowing to Move
If you decide a loan is the way to conquer the short-notice relocation equation, what's key is to keep the interest on the loan you take as low as possible. The lowest interest on a 24-month personal loan by a bank, measured as recently as 2011: 10.52%.
With that in mind, there are several ways to think about these products in terms of financing your move.
Secured/Unsecured Personal Loans
If your credit score is strong and you have any collateral that can come into play, a secured low-interest personal loan from a bank may be an option. Since our example is not that of a homeowner but a renter, collateral won't be a house but could be an investment portfolio, if you have one. Depending on the preceding factors, rates on a secured loan can be anything from 7% to 36%. Obviously, in our scenario, you will want it to skew a lot closer to the former than the latter amount. No collateral means a "signature" loan for borrowers. Highly dependent upon your credit score, your interest rate will be higher for this kind of financing.
Banks tend to want to write mortgages and car loans, but credit unions take a friendlier view to personal loans. And the interest rates can come way down. Some will start at about 9%, according to a 2012 Fox Business report.
Peer to Peer
We're talking about companies such as Lending Club and Prosper. You'll need a credit score in the mid- to high-600s just to qualify for one of these, and then your interest rate will depend on how far your score exceeds that threshold. Peer-to-peer loans can dip as low as 7% and climb as high as 25%.
Military Financial Services
Members of the U.S. military and their families can tap interest rates as low as 10.49%, via providers such as USAA.
So, given our example, say you take a $9,000 loan. At 10.49% interest, it'll cost you about $520 in interest, plus the principal, which over 12 months would be $793 per month, or $417 over 24 months (but interest over two years would total some $1,016).
Offsetting the Principal: Ways to Minimize Sudden-Move Impact
If you've secured your personal loan for the move, now is the time to create some offsets that will reduce what you owe on the principal. Here's a pair of solid strategies for the creative borrower:
Sell the Car
Own a car but you're moving to a city with fabulous public transportation? Sell your vehicle. It can mean several thousand dollars in your pocket before moving day. Your loan just went from, say, $9,000 to $3,000. If you don't get the money in hand before your move, apply what you make from the sale to the loan you've taken right away. Now, your 10.49% interest loan will accrue only about $170 per year interest, and you can pay off the loan for $139–$264 per month depending on how quickly you're able to go.
It differs from state-to-state, but on at least the federal level, relocation means that reasonable moving expenses can be written off come tax time. There are two tests to qualify: distance of the move (minimum 50 miles) and time worked in the 12 months following the relocation. See the IRS website for more information about deductions for work-related moving.
Relocating for a job without an employer's allowance can be difficult, but it's not impossible. And the long term benefit of your career step can far outweigh the short-term balance you may have to carry to make it happen. Borrow carefully, and then make your payments. You'll be happily situated before long.