Borrow Money
How To

Borrow Money

Most people, at some point in their lives, will find themselves in need of a cash injection. It could be due to an unforeseen emergency, a family wedding, or borrowing to start a new business. Maybe it’s for college tuition.

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

To decide on what type of lender to use, you need to answer a few important questions:

Question 1

Why do you need money?

What do you need the funds for? This will determine the urgency, the amount, and the time frame you are looking to pay the funds back.

Question 2

How much do you need?

The amount you need to borrow to cover your needs. Never borrow more than you can afford to pay back, and always compare lenders to find the best deal.

Question 3

What can you afford?

Determine what you can realistically afford to pay back on a monthly basis. Lenders will likely look at your monthly income to find out if they can offer you a suitable deal.

5 Ways to Borrow Money

Outlined below are some of the best lending options available to US citizens. Each lending system 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, 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[2].

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 privately owned, and therefore their main priority is their shareholders. Therefore, this can give you little control over your loan.

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. To become a member you each credit union has different criteria.

Because their owners are their customers, credit unions can offer cheaper loan rates when borrowing money.

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.

The credit union pools their customer’s savings and repurposes those at a higher interest rate into loans for their other customers. It is similar to how banks work.

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

However, some online banks and lenders can offer very competitive APRs to credit unions and are worth considering 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 offer less convenience unless you plan on staying in one place.

3. 401(K)

Borrowing out of your 401(K) should only be for emergencies. Taking from your future retirement is not often 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 meager interest rates. You can borrow up to 50% of your fund with a limit of up to $50,000 over 5 years.

When you borrow from your 401(K), you are missing out on compounding interest during the time that money is not in your account.

Compounding interest can add up quickly 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[1].

4. Online Lenders

Reputable online lenders have become one of the biggest and easiest ways to borrow small personal loan amounts. This industry has overtaken the likes of 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 for 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, and all APRs are dependent on 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.

Online lending can be an excellent way to borrow small amounts of money if you have had a damaged credit score.

There are many online lenders to choose from. Customers can compare multiple rates at one time to ensure they are getting the best deal possible to suit their needs.

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

Borrowing money online can be beneficial when wanting to consolidate debt with a lower interest loan. It can also improve a damaged credit score if borrowing correctly and loans 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 are dangerous 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 the best first credit cards.

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

The trap is when you miss a month, and the interest is now added on to your loan balance with exorbitant fees north of 20% interest annually.

The other negative with 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

Step 1

Clean Up Your Credit

Credit scores are important factors to consider when applying for a personal loan. The higher your ranking, the better your chances of acceptance. Check the records for mistakes.

According to the Consumer Financial Protection Bureau, common errors that can harm your credit score include wrong accounts, closed accounts listed as available, and incorrect credit limits.

Keep track of your payments. If you haven’t already, start making monthly payments on all of your loans, paying more than the minimums when you can.

This would improve your payment history as well as your credit utilization ratio, which is the amount of your usable credit that you are using. These two factors account for 65% of your FICO ranking.

Request an improvement in your credit cap. Request an improvement by calling the customer service numbers on the back of your credit cards.

If your income has increased since you received the card and you have not missed any payments, you have a better chance.

Step 2

Re-balance Your Debts and Income

Loan applications request your annual salary, which may include earnings from part-time jobs. Consider starting a side hustle to supplement your salary, or work for a promotion at your current job.

Also, do all you can to reduce your debt.

Consider liquid assets, such as stocks kept in taxable accounts. Experts agree that applying the proceeds to high-interest consumer loans could result in a higher rate of return.

Increasing your income and decreasing your debt lowers your debt-to-income ratio, which is the number of your monthly debt payments divided by your monthly income.

Although not all lenders have strict debt-to-income (DTI) criteria, a lower ratio indicates that you have leverage over your current debt and can take on more.

Step 3

Find the Right Lender

Most online lenders state their minimum credit score and annual income requirements, as well as whether they accept co-signers. You will pre-qualify for financing if you meet a lender’s minimum requirements and want to see estimated rates and conditions. Pre-qualifying for most lenders results in a soft credit pull, which has no effect on your credit score.

Pre-qualify with many lenders and compare interest rates and conditions. The best loan choice has costs and fees that are within your financial constraints.

How can I borrow money immediately?

If you need a personal loan, the fastest way to borrow money is to find an online lender. If you already have a credit card, you can request a cash advance.

Where can I borrow money?

You can borrow money from online lenders, credit unions, banks, financing companies, and more.

What is the cheapest way to borrow money?

The cheapest way to borrow money will either be from a bank, credit union, or an online lender. All lending rates are dependent on your credit score. The higher your score the more creditworthy you are to lenders which will lower your credit risk reducing your rate. 

Can you borrow money if you have bad credit?

The quick answer is yes! Most lenders will look at your credit score when considering your application along with your current income. Some lenders specialize in offering loans for bad credit. They can even help you improve your credit if the loan is paid on time.


Lorien is the Country Manager for Financer US and has a strong background in finance and digital marketing. She is a fintech enthusiast and a lover of all things digital.

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Last Updated: July 26, 2021

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