The Best Ways to Borrow Money
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The Best Methods to borrow Money
Are you in need of borrowing money? We look at the most affordable and fastest methods to get a loan and two alternatives to avoid.
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Last updated on Nov . 28 2022
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Table of Contents
Table of Contents
It’s usually better to pay cash than to borrow money, but occasionally life throws up a curveball and you must look for alternatives.
If this happens, be aware that not all types of borrowing are made equal, and some have more financial drawbacks than others. If you are looking to secure the best rate possible or simply need money fast, make sure to carefully consider your choices and evaluate the risks.
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The cheapest ways to borrow money
It is always costs, however some kinds of loans are more affordable than others in particular if you have good or excellent credit (a score of 690 or higher).
Here are the top options:
1. Personal loan from a bank or credit union
Credit unions or banks generally offer the lowest , or the total cost of borrowing on personal loans. The loan amounts vary from several hundred dollars to $50,000 or greater.
Some banks may provide an additional APR discount to existing customers. Perks like flexible payment options could be provided by a bank to help you to manage loan repayment.
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The majority of banks let you preview the loan’s rate and duration before a formal application is submitted. If you don’t have great credit, however, it can be hard to get approved through the bank.
Some banks may have better rates than banks, specifically for those with bad credit (a score of less than 630).).
Loan officers may consider the overall financial picture of your finances, instead of relying upon your creditworthiness. However, you must be a credit union member before applying.
2. Credit card with 0% APR
A credit card with a 0% APR could be among the most cost-effective ways to get cash if you are able to pay off the balance within the initial timeframe of the card. You generally need to have excellent credit to qualify.
Certain cards provide an initial period of between 15 and 21 months, where no interest will be charged for purchases.
If you get an APR-free credit card with a 15 month introduction period to cover an unexpected expense like a medical bill or car repair, and you pay off the balance nine months later. You’ll have borrowed that money at no interest.
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3. Pay now, buy later
” ” plans let you buy items today and then pay them off over several installments, generally without interest or fees. Numerous merchants offer these plans during the online checkout process, and occasionally in-store.
is a buy-now, pay later company that never charges interest but might charge a fee for late payments. charges interest depending on the repayment term.
If you have a zero-interest payment option such as buy now and pay later could be a cost-effective method to finance your essential expenses. However, since it’s simple to get, it can cause overspending.
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4. 401(k) loan
Retirement loans allow you to get money from your. In contrast to a withdrawal out of your 401(k) the loan doesn’t need to pay tax or penalties on loans. loan.
They also have some of the lowest rates on the market even if your credit score is low. Interest on a typically equals what is known as the prime rate — which is the benchmark used by banks to determine rates on the consumer loan products — plus one or two percentage points. The interest earned is returned towards your retirement savings.
Another key perk is when you fail to pay and your credit score doesn’t suffer because defaulted 401(k) loans are not reported to credit bureaus.
The disadvantage of the 401(k) loan? The loan is a borrowing opportunity for your future self. This lessens your retirement nest egg and the growth of your tax-deferred account.
5. Line of Credit for Personal Use
behave like a hybrid between it’s a hybrid between a loan and a credit card, and are provided by a few institutions like credit unions and banks. Like a loan, a lender will need to accept your application according to your credit score, income and other debts. Like a credit card, once approved you can only draw the amount you need and pay interest only on the amount you spend.
This is ideal for those who aren’t certain how much they need to be able to. Creditworthy or excellent borrowers likely have the best chance of getting the lowest rates.
Compare the cheapest ways to borrow money
Type
Pros
Cons
Personal loan from a bank or credit union
Lower APR than other kinds of personal loan lenders.
Discounts for current customers or members.
Perks such as financial advice and flexible payments.
Many types available which include secured personal loans.
Credit score must be excellent or good.
You must join to apply for the credit union loan.
Prequalification may not be available.
Credit card at 0% APR
Pay 0% interest on all purchases during the promotional period.
You need credit that is excellent or great.
Must repay the balance in an extremely short period of time.
Buy now, pay later
No interest or fees with certain plans.
Certain plans may charge interest or fees.
It can result in overspending.
401(k) loan
You can borrow money from yourself instead of a third-party.
Interest rates are low.
The interest earned is credited into your retirement savings account.
The consequences of a late payment are not detrimental to your credit score.
Reduces retirement nest egg and the potential to grow it.
Credit line for personal use
Draw money based on what you require and pay interest only on the portion you actually use.
It is ideal for people who are not sure about their credit requirements.
Need good or excellent credit.
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Fastest ways to borrow money
The more easily you can access the funds, the riskier or more expensive it is. But the following are your top alternatives:
1. A personal loan from an online lender
As compared to traditional lenders, such as banks or credit unions, online lenders are more convenient and speed given their fully online application and financing process. Some banks, on the other hand, require new customers to visit a branch to complete the application.
You’ll need to pre-qualify, and evaluate lenders to determine the most favorable APR. This is largely dependent on factors such as your credit score as well as income. Online lenders do a soft credit test during pre-qualification therefore you are able to compare without affecting your credit score.
The online lenders cater to more consumers. People with bad or fair credit scores are more likely to with an online lender than the bank.
Check if you are pre-qualified for a personal loan and it will not affect your credit score
Just answer a few questions to get personalized rate estimates from multiple lenders.
The amount of the loan
on NerdWallet
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2. Apps for loans
If the need isn’t too significant you can make small advances on your salary, and sometimes instantly — though you might have to pay an additional fee for expedited service. Most commonly, the time to fund is between one and three days.
Most cash advance applications charge a subscription fee or optional tip. , which gives advances from $100 to $750, doesn’t charge interest, but it asks for a gratuity of up to $14 per advance.
3. A cash advance is a benefit of credit card
There is also access to . Think of it as the use of credit cards to “buy” cash rather than products or services.
Cash advances are usually restricted to a few hundred dollars, however, they’re simple and fast to obtain. In the event that your credit card has a PIN, simply visit an ATM to withdraw. If you don’t have a PIN, take your card and ID to a financial institution that offers advances on your card’s network, like Mastercard and Visa.
While it’s a quick method of getting money into your bank account, it’s expensive. You’re likely to experience a combination of cash advance charges and ATM or bank charges as well as interest rates that are more expensive than the rates charged for purchases. The costs start to accrue in a matter of minutes.
The year’s top personal loans
Browse our Best-Of Awards to review the best personal loans and select the most suitable one for your project.
4. A loan from family or friends
You might have people in your network who is willing to help you out if you’re in a pinch. It will save you the time-consuming process of submitting a formal request and obtaining approval procedure that is required by other lenders. This can be a good option for anyone who may need urgent cash or who is concerned that they’re not eligible for a loan with their current credit score.
But approach it cautiously. The lending of money between family and friends can cause conflicts. Therefore, it is recommended to put the mutually agreed conditions on paper and get the document notarized.
5. Pawnshop loan
Like a secured loan from a bank, it requires you to put up something as collateral. Think of antiques, jewelry, or electronics. After you have brought the item in, the pawnshop assesses its worth, condition, and resale value and then makes an offer.
If you accept the amount, you walk away with the money and a pawn ticket. When you have paid, you can re-collect your item. If you don’t pay on time which is 30 days in the averagethe pawnshop retains the item.
A Pawnshop loan does not require any loan approval procedure and is a convenient way to borrow money without requiring a credit score. However, in conjunction with the interest rate on the loan they also charge storage fees as well as appraisal and insurance, which can lead to an APR of up to 200 percent.
Compare fast ways to borrow money
Type
Pros
Cons
A personal loan through an online loan provider
Full online application procedure.
There are options for Fair and Bad credit.
Higher APR based upon your credit rating.
Apps for loan
Charge additional fees.
Cash can be received instantly.
Charge a fee for immediate access to cash.
Cash advance using the credit card
There is no application or approval procedure If you already have the card.
Just as easy as visiting an ATM or a bank.
Immediate access to funds.
Interest and fees that are high begin to accrue as soon as they are incurred.
The loan is from family members or friends.
There is no application or approval process.
Could lead to conflict.
Pawnshop loan
There is no application or approval process.
Instant access to funds.
Potential to lose a valuable item.
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Borrowing options to avoid
1. Payday loans
A is a kind of small, short-term loan which is intended to be repaid through your next paycheck. Although funds can be accessed almost instantly but payday loans can be extremely costly and should be the last option. It is possible to pay $15 per 100 dollars borrowed. This equates to an APR of 391% for a 2-week loan.
The federal Consumer Financial Protection Bureau shows that the majority of borrowers wind having to pay more fees than they did initially in credit, creating an unending cycle of credit.
2. High-interest installment loans
They are paid back over a period of weeks or months, and carry interest rates above 36%, which is the highest rate that consumers find affordable.
For example, a $1000 loan with a 6-month period with a 60% APR will cost you $182 in interest, and would require a $197 monthly payment. The same loan with a 20% APR will cost you the same amount in interest, which is $59. It’s recommended to avoid high-interest installment loans when you can, as high APRs can cause problems in paying off these loans off.
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Repaying borrowed funds
When you’ve decided on how you’re going to borrow the money, make an . You don’t want a financial setback that turns into an ever-growing and long-term debt.
Unsure of where to start? NerdWallet suggests using the to create a budget since it’s an easy-to-follow strategy that covers your essential living expenses including debt obligations, savings and.
Reduce the likelihood of borrowing by keeping track of your finances and creating a well-balanced emergency fund to cover the eventuality.
About the authors: Jackie Veling covers personal loans for NerdWallet.
Ronita Choudhuri-Wade is the personal loans for NerdWallet.
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