When you need funds you don’t have available in your bank account, you may go right for your credit card, but that is not always the best way to borrow money. Especially if you need a large amount of it, such as to buy a home, pay for post-secondary tuition, start a business, or for emergency needs, such as a car repair or a health issue.
Fortunately, you have a range of ways to borrow, each with its advantages and disadvantages, from traditional lenders to non-traditional.
1. Use a Credit Card
The only time you want to use a credit card, ideally, is when you know you can repay the cost within a month or two. If you cannot trust yourself to repay the full amount, you may end up saddled with additional interest at far worse rates than what you can get through other means of borrowing.
2. Personal Line of Credit
Financial institutions offer a personal line of credit similar to a credit card. A personal line of credit allows the borrower to access funds up to a certain limit and repay them at a better interest rate than a credit card.
3. Join a Credit Union
A credit union is a member-owned non-profit organization often offering better terms than a bank can regarding loans and borrowing. Fees and interest rates are usually lower, offering many of the same financial services for individuals and businesses. Assuming your credit union application is approved, having an account at a credit union can prove very advantageous in more ways than one.
4. Get a Personal Loan
A personal loan is an unsecured loan from a bank, credit union, or online lender. It’s given in full to the borrower, unlike a personal line of credit which allows you to dip in and out of it as needed. A personal loan is then repaid monthly with regular deposits, often pre-authorized.
5. Home Equity Line of Credit
A home equity line of credit, or HELOC, is backed by the equity in your house. It can be a high-risk way to borrow money if you don’t have a clear way to repay the loan. If you cannot, the bank considers your house collateral and will take it. HELOCs make this list of the best ways to borrow money because their interest rates are much lower than credit cards, and the terms are often favourable.
6. Use a Savings Account
If you have the funds, borrowing from yourself can be the most convenient way to borrow money. Though taking money away from a savings account can feel disappointing, if you need it, there isn’t any wild interest rate or payment schedule you have to worry about. You repay the funds if and/or how you wish.
7. Public Agencies
There may be government programs or non-profits that offer loans for specific uses that can help you during times of emergency or financial difficulty. You may want to look into regional and national programs and evaluate what kind of loans are available to you, depending on what you’re trying to do. These loans typically have zero or near-zero percent interest and may not require a credit history check.
8. Loan from a Friend
Borrowing from a family member or friend is generally discouraged due to the stress it can put on the relationship. However, if you can trust yourself to pay back what you borrow, have a friend who is willing. If you’re willing to come up with your terms regarding interest, be sure to write up an agreement beforehand with them so that there is no misinterpretation or conflict over expectations.
9. Try Peer-To-Peer Lending
Peer-to-peer lending offers loans via online services that match independent lenders with borrowers. Many peer-to-peer borrowing sites exist, allowing people to link up and borrow money from others without the intervention of banks. Anyone seeking a personal loan may be encouraged to consider P2P options and rates.
10. Finance Companies
Independent finance companies are focusing on lending money that can help you borrow to specifically go after big-ticket items, such as a car or furniture. These are usually short-term loans associated with a particular service or company, with competitive rates. If you know of a finance service or company, it may make sense to evaluate if borrowing from them is worth it.
11. Payday Loans
A payday loan can be a short-term unsecured loan, usually with very high-interest rates. They are a last resort but may be an option for some individuals who cannot qualify for any other way to borrow money. Predatory lenders offer them, and are easy to obtain. However, with fees and interest, what you pay back often makes them not worth looking at unless you have to.
