No one likes to borrow money, but sometimes, circumstances force you to do so. After all, if you had enough money, you wouldn’t be here! If you find yourself in a state where you need some extra cash, you’d obviously want the quickest and cheapest option that also considers your economic situation.
However, borrowing money comes with a price, even if you borrow from friends or family and even if the price is not always monetary. Every method of borrowing is different and has its own pros and cons. Let’s explore each one in detail.
Important Note:
A credit score is a crucial factor when borrowing money. Your credit risk, or the probability that you will make your payments on time, is represented by your credit score. It can range from 300 to 850. Usually, a credit score above 670 is considered higher and will fetch better loan terms.
Cheapest Ways to Borrow Money
Personal Loan from a Bank or Credit Union
This method of borrowing is an excellent way to save money, as banks and credit unions offer comparatively lower interest rates. The repayment period is usually two to seven years.
Bank Loans
If you use an existing account, you could have more flexible payment options and discounts on the APR. Most banks normally pre-qualify you for a loan. This way, you can know the available rates and terms for a loan beforehand.
Yet, there is no guarantee that your bank will offer you the most lucrative choice. So, take some time to compare and check around different banks. Moreover, banks are for-profit organizations, so naturally, they prefer loaning to people with higher credit scores.
Credit Unions
Annual percentage rates (APR) offered by credit unions are usually lower than banks. They focus on giving back the profits earned to their members as benefits, either in the form of a lower interest rate or a lower cost for their services. A credit union will be your best option if you have a lower credit score.
However, you must be a member to borrow from a credit union, and you must pay a fee to become a member.
0% APR Credit Card
Opting for a 0% APR credit card means you don’t have to pay interest for a limited period, which generally ranges from 6 to 24 months.
You need a higher credit score to be eligible for this type of card. Plus, if you don’t pay back what you owe in the given time period, the amount will mount, and you will have to pay it back in a shorter time!
Buy Now, Pay Later
Buy now, pay later options allow you to buy items with a only downpayment. The remaining amount can be paid in installments over a certain period. You can opt for buy now, pay later schemes even with a lower credit score, and they typically don’t include any interest or fees.
Conversely, some plans do come with interest, so be careful to check before signing on. Plus, this is only a viable choice if you are looking to borrow money for some type of purchase, not if you need cash on hand. Another reason to be cautious about buy now, pay later options is that they can be tempting to spend beyond your means due to their ease and convenience.
401(k) Loan
Here, you are both the borrower and the lender since you are borrowing money from your own retirement fund. The interest rate is usually low, and the interest paid returns to your account. The good news is that your credit score doesn’t matter when applying for a 401(k) loan.
Nevertheless, you must be careful before signing on for this type of loan. Since you’re putting your retirement fund as collateral, you are at risk if the loan is not paid back properly. Moreover, you must repay the loan soon if you leave your job.
Personal Line of Credit
If you are unsure about the amount to borrow, you may consider opening up a personal line of credit. You get approval for a specific credit amount, but you only need to pay interest for what you use. It combines a loan and a credit card; a higher credit score means lower interest rates.
Fastest Ways to Borrow Money
Online Lenders
Borrowing from an online lender is quick and convenient, as you can easily complete an online application, and the funds are typically made available quickly. Unlike banks, online lenders will give money to bad-credit borrowers as well. Still, you should research, gather information from several lenders, and then decide the best terms for your needs.
Loan Apps
You can receive cash instantly through loan apps, sometimes by paying extra. Loan apps only let you borrow small amounts and don’t charge any interest. Generally, you should pay the money back within a few days since these are short term loans. You may have to pay a subscription or other fee, but most fees are optional.
Cash Advance from Credit Card
You can borrow money using your credit card simply by visiting an ATM and entering your PIN. If you don’t have a PIN, you can borrow money from the bank by taking your card and ID.
However, the downside to borrowing money this way is that the bank will charge high fees for cash advances or ATM or bank fees. Moreover, your interest rate will be higher than usual, allowing you to borrow only small amounts.
What You Need to Know
As the borrower, you should be informed and make the right decision. This depends on how much money you want to borrow and your economic condition. Consider whether you need the money soon, want the best rate, or have a suitable repayment plan.
As a savvy borrower, you must:
- Know your requirements and situation well.
- Research the options available.
- Contact as many lenders as possible.
- Try to discuss and negotiate.
- Read the loan agreement carefully before you sign.
Try to avoid borrowing or postpone it until your credit score is good. Ultimately, if you’ve weighed your options and decided to borrow money now, ensure you have a payback plan before signing that agreement!
