When you face unexpected expenses or make a large purchase, you might need to borrow money. And applying for a loan might seem like the easiest option.
While getting a loan is the right choice in many situations, some call for other ways to borrow money — ways that don’t require an application or interest. Here’s a guide to getting cash in your pocket quickly and how to decide which method is best for you.
The 7 cheapest ways to borrow money
There are many different ways to borrow money, but it’s only natural to look for the options with the lowest costs first. Here are some of the cheapest ways to get the cash you need:
1. Personal loans from credit unions
Credit unions often have lower annual percentage rates (APRs) than banks. Because they’re nonprofit organizations owned by their members, they pass on earnings to their checking and savings account holders in the form of lower interest rates and fees, rather than aiming to maximize profits for shareholders. That means credit unions generally have good loan options.
2. Personal loans from banks
While credit unions often have strong personal loans, banks can still be a good choice. If you have a good credit score and a solid relationship with your bank, you have a good chance of securing a competitive interest rate.
3. Credit card with 0% APR
With low barriers to entry and simple signups, credit credits are an easy way to borrow money regularly. Some cards offer a promotional period with 0% APR on purchases or balance transfers. During this time, you can borrow money without any interest. Just make sure you pay off your balance in full before the promotional period ends and the interest rate increases to the regular APR.
4. Personal lines of credit
A personal line of credit is a revolving credit account, meaning you can borrow repeatedly without having to reapply, like with a credit card. Interest rates on personal lines of credit are usually lower than credit card APRs (after any introductory 0% APR period), and limits are often higher. This makes them a cost-effective option for large or ongoing expenses.
5. 401(k) loans
If you have a 401(k) retirement account, you can borrow from it at a low interest rate. The interest you pay goes right back into your account, so you’re essentially paying yourself. But borrowing from your 401(k) can reduce your investment returns, and you may be charged penalties if you don’t repay the loan on time.
6. Home equity loans and lines of credit
If you own a home and have equity built up, you may be able to borrow against that equity at a lower interest rate. Home equity loans provide a lump sum of money, while home equity lines of credit (HELOCs) let you borrow as needed. To estimate potential monthly payments and interest rates, consider using a mortgage loan calculator. Keep in mind that your home serves as collateral for these loans, so you risk foreclosure if you borrow more than you can afford to pay back.
7. Peer-to-peer lending
Peer-to-peer lending platforms connect you with individual investors instead of traditional lenders. Those investors offer loans that you can pay back with interest, just like a regular loan. Interest rates can be competitive, especially if you have a good credit score. But these loans may have complex fee structures, so double-check the fine print and understand the consequences if you default.
The 3 fastest ways to borrow money
Depending on your needs, speed can be just as important as affordability when deciding where to borrow money. Here are some of the fastest ways to access cash:
8. Loan apps
Loan apps provide quick access to small amounts of cash, usually less than $1,000. Some providers give you money instantly, but you’ll likely have to pay extra. If you can wait a few days, the best loan apps have low and even optional fees. Repayment terms are short, so this is a good choice for quick cash to cover short-term expenses.
9. Credit card cash advance
If you have a credit card, you can often get a cash advance at an ATM or bank, which means you instantly borrow money against your credit limit. But cash advances usually come with very high interest rates and fees, and the interest starts accruing immediately. Use this option sparingly and pay down the balance as soon as you can.
10. Online lenders
Online lenders, like Upstart, Avant, and SoFi, provide personal loans more quickly than traditional banks. The application process is usually entirely online, and funds appear in your account within a few business days (if you’re approved). But interest rates may be higher than those from banks or credit unions, especially if you don’t have a strong credit score. And it’s harder to tell if an online lender is reputable.
3 things to avoid when borrowing money
While borrowing money can be an effective way to reach your financial goals, there are a few pitfalls to watch out for. Steer clear of these common issues to protect your financial well-being and avoid unnecessary stress:
1. Taking high-interest payday loans. Payday loans are short-term loans that usually have extremely high interest rates — often in the range of 300–500% APR. These loans can quickly trap you in a cycle of debt because the high interest charges make it harder to pay back the loan in full. There are many better alternatives for short-term loans.
2. Ignoring warning signs of predatory lending. Be wary of lenders who engage in predatory practices, like charging exorbitant interest rates or hidden costs like origination fees, application fees, and prepayment penalties. If a loan offer seems too good to be true or makes you feel uncomfortable, trust your instincts and look for a more reputable lender.
3. Using borrowed money for non-essential expenses. Borrowing money is a huge commitment, and you should only do it if you truly need the money. The interest rates and fees aren’t worth the cost. Focus on using loans for essential needs or investments that can improve your financial situation in the long run, like education, home improvement, or debt consolidation.
3 tips for getting a great loan deal
You know what to avoid. Now learn what to look for. Here are some tips to help you get the most out of your borrowing experience:
1. Shop around for the best rates and terms. Don’t settle for the first offer you receive. Compare rates and terms from multiple lenders to find the best deal. Even a slightly lower interest rate can save you a lot of money in the long run, and it’s worth the extra few days or hours of searching and comparing.
2. Have a repayment plan. Before taking out a loan, create a budget and a solid plan for repaying the debt. Consider setting up automatic payments to help you stay on track and avoid missed bills. And if you find that paying off the loan seems impossible, it might be time to rethink it.
3. Borrow what you can afford to pay back. Before taking out a loan, assess your budget and make sure you can comfortably afford the monthly payments and interest. Borrowing more than you can realistically pay back can lead to missed deadlines, damage to your credit score, and financial strain.
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