Borrow Money

When you are trying to accomplish a financial goal that you can’t fund with savings– whether it’s starting a new business, a home purchase, or college tuition – you’ll need to borrow money.

There are many borrowing options available and it can be challenging to find the right lender and loan rates to suit your individual requirements.

To help choose the right lender, here are a few important questions to consider:

5 Ways to Borrow Money

Outlined below are some of the best lending options available to US citizens. Each lending method is different, and all have some benefits.

1. Banks

Borrowing money from your bank can be one of the cheapest ways to get a loan. They offer a variety of lending options from mortgages, credit cards, personal loans, and business loans, and can often customize loans to suit individual needs.

Banks make their money by borrowing at a lower rate and lending to their customers at a higher interest rate. Their profit is the difference between the two.

Bank lending can be useful when customers need significant purchase lending, such as a car loan or a home loan. Their rates, however, are not fixed and can change throughout the loan agreement.

Banks are often public companies or privately owned, and their main objective is to maximize value for their shareholders. Therefore, your loan is simply a profit driver.

2. Credit Unions

Credit unions are like banks, except they are non-profit entities that are owned by their members.

To borrow money from a credit union, you must first become a member. The membership criteria for each credit union are different.

Because their owners are their customers, credit unions can offer loans with lower fees and interest rates.

If you find yourself asking, “where can I borrow money instantly?” The answer is not credit unions. They can take weeks to process applications and payout funds for a loan.

The credit union pools their customer’s savings and lends them out at a higher interest rate to other members. It is a similar process to how banks work.

If talking to someone in person is essential to you, and you need a more significant loan amount, then a credit union may be the right option.

However, more recently, some online banks and lenders can offer very competitive APRs compared to credit unions and are worth considering as an option before borrowing.

The negative with credit unions is they are much smaller entities than big banks, and communication is usually on location or phone.

Therefore, they may offer less convenience unless you plan on staying near their branch office or offices.

3. 401(k)

Borrowing from your 401(k) should only be for emergencies. Taking from your future retirement is generally not a good idea.

The money you have already saved in your 401(k) is technically yours; therefore, borrowing from it can be somewhat tempting.

Borrowing from your 401(k) usually carries low interest rates but you are paying yourself the interest payments anyways. You can borrow up to 50% of your vested balance up to a maximum of $50,000. General loans must be repaid in 5 years or less while loans used for the purchase of a principal residence may allow a repayment timeline of up to 25 years.

A big downside when you borrow from your 401(k) is that you are missing out on the opportunity of compounding interest or returns since that money is not in your account.

Compounding interest can add up over time and is a massive benefit for a solid retirement plan. The lack of funds in your 401(k) over a long period can be detrimental to your retirement future.

4. Online Lenders

Reputable online lenders have become one of the most popular and easiest ways to borrow small personal loan amounts. This industry has become extremely competitive with pawnshops and payday loan stores.

Running completely online has reduced the overhead fees and allowed APRs reduction for consumers.

While some online lenders offer to finance large loan amounts, most companies focus on providing short-term (30 days – 72 months) small loan lending solutions.

Each online lender has different fees associated with loan origination, and all APRs are different for each company and the customer’s credit score.

You can borrow money online instantly with some online lenders. Their application process takes a few minutes and their decision is generally made the same day for small loan amounts.

This can be very helpful when you need to borrow money asap.

There are many online lenders to choose from. Borrowers can compare multiple companies based on rates and fees to ensure they are getting the best deal to suit their needs.

Online lending can be the best option when borrowing money with bad credit.

Borrowing money online can be beneficial when wanting to consolidate debt to a lower-interest rate loan. It can also help improve a damaged credit score if borrowing is done prudently and loan repayments are paid on time.

When you are wondering how to borrow money online, our online personal lending calculator can help you find and compare rates from multiple lenders at once. It does not affect your credit score.

5. Credit Cards

Credit cards can be an excellent short-term solution for a quick cash injection. They do carry risks if used unwisely. Using a credit card without understanding the fees can cause long-term financial hardship.

Credit card interest is most often on the higher interest side of personal lending. However, with no lending fees, short-term borrowing can be beneficial.

If you need a credit card, we have put together a list of some of the best credit card options.

If you can pay off your credit card balance by the end of each month, you are borrowing money at 0% interest.

The downside occurs when you miss paying off a balance in full for a month, and the interest is now added on to your loan balance with exorbitant fees which can easily top 20% interest annually.

The other negative of borrowing using a credit card is the effect it may have on your credit score. If credit card debt is unpaid, it reduces your chance to borrow from other lenders.

Improve Your Chances of Getting a Personal Loan Approved

There is no one-size-fits-all method for getting a personal loan application approved.

Credit score and income requirements differ by lender, and some online lenders consider nontraditional data such as free cash flow or education level.

However, loan companies all have one thing in common: they want to be paid back on time, which means they only accept borrowers who fit their criteria.

Here are three suggestions to help you apply for a personal loan.

How To Get a Personal Loan Approved