Everyone finds themselves at a point in life when they need to borrow money. Be it for a new home, to pay for a car, or to start a business. When this happens, you need to know where to look. There are plenty of lenders out there for all credit types, but not all are created equal.
So whether you can take your time to research the best rates or simply need money fast, be sure to consider your options and assess the risks before you take the plunge. Look for loans with low interest rates, few fees, and flexible repayment plans.
Be sure to compare offers so that you find one that fits your budget and gives you the best possible rates for your credit score. To help you out when life’s unexpected expenses leave you in a financial pinch, we’ve put together a guide for the best ways to borrow money.
1. Online Personal Loan
Online personal loans have gained popularity due to their accessibility and convenience. Many online lenders are willing to work with borrowers with lower credit scores – as low as 560 – and instead, consider alternative factors like income and employment history. They typically have a quick approval process, no collateral, and a variety of lenders to choose from. Interest rates can be higher, so it’s essential to compare offers and read the fine print.
2. Bank or Credit Union Personal Loan
Personal loans from banks and credit unions are a reliable and structured way to borrow money. While they typically require a credit check and a score of 670 or higher, some institutions are more lenient.
You can generally find lower interest rates, fixed monthly payments, and a clear repayment plan. So check in with your bank or credit union and see what they have to offer.
3. Personal Line of Credit
A personal line of credit is generally unsecured and works like a credit card. You borrow a line of credit from a bank or credit union and then pay it back with interest. It typically has a lower interest rate than a credit card so it’s a good short-term solution. You can take out another line of credit once you pay the first one back, but only for two years.
4. Buy Now, Pay Later
Buy now, pay later services have gained popularity for smaller purchases. They allow you to make a purchase, pay a small downpayment typically 25% of the price, and then pay for the rest in installments over time, often with no interest. They are a great option for immediate emergency purchases you can’t put off.
5. Cash Advance from a Credit Card
A cash advance from your credit card is basically using your card to buy cash rather than goods or services. They are typically fast and easy to get when you’re in need of quick cash. There’s no separate application, no credit check, and no collateral but there are generally high fees and interest rates, often significantly exceeding your card’s standard APR. So be prepared if you choose this option.
6. 0% APR Credit Card
A 0% APR credit card can be a lifesaver for unexpected expenses and one of the cheapest ways to borrow money if used wisely. During the introductory 0% APR period (anywhere from 6-21 months) you can spend within your credit limit without paying any interest or fees. Just be sure to have a plan to pay it all off before the 0% APR period ends. After the introductory period ends, high-interest rates kick in.
7. Peer-to-Peer Lending
Peer-to-peer (P2P) lending platforms offer an alternative to traditional banks. They connect borrowers with individual investors willing to fund loans. P2P lending can be an attractive option for those with lower credit scores as approval criteria tends to be more flexible often with a minimum credit score requirement as low as 600.
Be aware, there is a potential for high fees and interest rates. Carefully research and compare P2P lending platforms to find the best terms and conditions that suit your needs.
8. 401(k) Loan
A 401(k) loan allows you to borrow money from your retirement account, up to 50% of your savings. It’s a relatively simple process with no credit check required, and the interest paid goes back into your own account.
However, this option comes with a significant caveat: you’re risking your long-term retirement savings. If you fail to repay the loan within the stipulated timeframe, you could face penalties and taxes. Only consider a 401(k) loan if you’re confident in your ability to repay and have no better alternatives for accessing funds.
How to pay back what you borrowed
Paying back borrowed money requires a clear plan and commitment. First thing you need to do is assess your debts. List everything you owe including the amounts, interest rates, and due dates. This helps you understand the total amount you borrowed and create a plan.
Next you’ll need to establish a budget that priotitizes repaying your debts. Analyze your income and expenses to determine how much you can allocate towards repaying your debt each month. Cut unnecessary expenses if needed. While paying off your current debt, refrain from taking on new debt to avoid compounding your financial burden.
Decide on a fixed amount you can pay monthly and stick to it. Automate payments if possible to avoid missing due dates. If you have multiple debts, prioritize them by interest rates or due dates. Consider paying off high-interest debts first to reduce overall interest payments.
If you’re struggling to make payments, contact your lenders to discuss options like lower interest rates, extended payment terms, or debt consolidation. Lots of lenders are willing to work with you if you show a commitment to repaying what you owe.
Regularly review your debt repayment plan and adjust as needed. Celebrate milestones to stay motivated. Consistent effort and disciplined financial management will help you successfully repay your borrowed money.
Tips on borrowing money
Borrowing money can be a useful financial tool if done wisely. Here are some essential tips:
– Assess Your Need: Only borrow what you genuinely need. Avoid unnecessary debt that can strain your finances.
– Understand Terms and Conditions: Carefully read the loan agreement, paying attention to interest rates, repayment terms, fees, and penalties. Know the total cost of the loan.
– Compare Lenders: Shop around for the best loan options. Compare interest rates, fees, and repayment flexibility from different lenders to find the most favorable terms.
– Check Your Credit Score: A good credit score can help you secure better loan terms. Review your credit report and improve your score if necessary before applying.
– Consider Your Repayment Ability: Borrow an amount you can comfortably repay. Create a budget to ensure you can meet your monthly payments without financial strain.
– Avoid High-Interest Loans: Be cautious of payday loans or other high-interest loans. They can lead to a cycle of debt that’s hard to escape.
– Have a Repayment Plan: Plan how you’ll repay the loan before borrowing. Ensure you have a clear strategy for making timely payments.
By following these tips, you can manage borrowed money responsibly and maintain financial health.
What borrowing methods are best to avoid?
Certain borrowing methods can be detrimental to your financial health and are best avoided. The ones on our list below charge very high interest rates and fees and many come with short repayment terms that make it difficult for you to fullful your obligations.
- Payday Loans: These short-term, high-interest loans can trap you in a cycle of debt. They often come with exorbitant fees and interest rates, making them hard to repay on time.
- Title Loans: Similar to payday loans, title loans use your vehicle as collateral. Failure to repay can result in losing your vehicle, and these loans also carry high-interest rates and fees.
- Credit Card Cash Advances: While convenient, cash advances on credit cards often come with higher interest rates and additional fees compared to regular purchases. They can quickly become expensive.
- Rent-to-Own Agreements: These agreements may seem affordable but often result in paying much more than the item’s actual value due to high-interest rates and extended payment terms.
- Pawnshop Loans: These loans use personal items as collateral. Interest rates are typically high, and you risk losing your valuable items if you fail to repay.
- Loan Sharks: Avoid unregulated lenders who offer loans with extremely high-interest rates and use aggressive collection tactics. They can lead to severe financial and legal trouble.
By avoiding these borrowing methods, you can protect yourself from high costs and potential financial pitfalls.
What are common types of borrowing?
There are several common types of borrowing, each serving different financial needs:
– Personal Loans: Unsecured loans offered by banks, credit unions, or online lenders. They can be used for various purposes, such as debt consolidation, home improvements, or unexpected expenses. They typically have fixed interest rates and repayment terms.
– Credit Cards: Revolving credit lines that allow you to borrow up to a certain limit. They offer flexibility in spending but come with high-interest rates if balances are not paid in full each month.
– Mortgages: Secured loans used to purchase real estate. Mortgages have long repayment terms (typically 15-30 years) and relatively low-interest rates. The property serves as collateral.
– Auto Loans: Secured loans specifically for purchasing vehicles. The vehicle serves as collateral, and terms usually range from 3 to 7 years.
– Student Loans: Loans designed to cover education costs. They often have lower interest rates and flexible repayment options, including deferment while the borrower is in school.
– Home Equity Loans and Lines of Credit (HELOCs): Loans secured by the equity in your home. They can be used for large expenses like home renovations or debt consolidation, with the home serving as collateral.
Understanding these common borrowing options can help you choose the right type for your financial needs.
What are the advantages of borrowing money?
Borrowing money offers several advantages. It gives you immediate access to funds to quickly cover urgent needs. A loan can let you make a significant purchase like buying a home or a car, which might be difficult to afford with savings alone. Borrowing can offer financial flexibility, allowing you to spread the cost of large expenses over time rather than depleting your savings.
Loans can also serve as an investment. Student loans provide the opportunity to invest in education, potentially leading to better job prospects and higher earnings in the future. Business loans can provide the capital needed to start or expand a business, leading to increased revenue and growth opportunities.
Responsibly managing borrowed money, such as making timely payments on loans or credit cards, can help build and improve your credit score, making it easier to borrow in the future.
By leveraging these advantages, borrowing money can help achieve personal and financial goals more effectively.
The Bottom Line
When you’re facing financial challenges there are multiple ways to borrow money quickly. Assess your situation carefully, compare options, and choose the one that aligns with your needs, financial goals, and offers the best rates. It may take time, but it’s better in the long run to find the right option for your budget.
Remember to borrow responsibly and work on improving your credit for a more secure financial future.
