Many of us have plans for the future but don’t have the funds necessary to help us achieve those plans. Major life steps like owning a home, enrolling in graduate school or opening a business all require money to get the ball rolling. However, a lack of finances doesn’t mean you have to give up on your goals. Here’s a closer look at five different ways to borrow money — read on to determine which is best for you.
Personal loans are a convenient way to get money quickly. Unlike other loan types, such as automobile or mortgage loans, they don’t require a certain use for the money. They’re commonly found through the following sources:
- Credit unions
- Online lenders
Before determining your loan conditions, the lender will examine your credit score and debt-to-income ratio. Only those with a good credit history can expect favorable interest rates, loan terms and fees.
Credit cards are generally used to purchase goods and services. However, if you’re in need of funds, you can use your credit card to essentially “buy” cash (which you will pay back later). This method, known as a cash advance, offers the following features:
- Quick funds (generally from your bank or an ATM)
- Short-term loans (usually capped at a few hundred dollars)
- No application requirements
The downside of cash advances is that they can be expensive. Some come with flat fees, and most charge high interest rates if the balance isn’t paid off in time. Thus, you should only use this method if you need short-term cash that you’re confident you can pay off.
Peer-to-peer lending focuses on direct lending between investors and borrowers. Usually, these two parties are connected through an online platform such as Peerform or Funding Circle. The investor will look at a borrower’s profile before deciding whether they want to lend money.
Peer-to-peer lending is a mutually beneficial relationship. The borrower gets the funds they need, while the investor receives interest. However, there may be fees for transactions. This method is ideal for anyone who doesn’t want to work with intermediaries like banks and brokers.
If private lending institutions aren’t offering favorable loan conditions, you might want to try a public agency instead. The U.S. government offers access to several loan types, such as:
- Student loans
- Business loans
- Housing loans
Government-funded loans tend to have several attractive features, including low interest rates and long repayment terms. However, they also require tedious paperwork and often restrict applicants to certain income levels. Thus, not everyone will qualify.
Many workers have 401(k) plans with their employers, which helps save for retirement. If you need extra funds, you can borrow from this account by taking out a loan. Unlike withdrawals, (401)k loans don’t require people under the age of 59.5 to pay penalties or fees, which makes them the preferable option.
While 401(k) loans are tax-free, they still come with principal and interest. As with any loan, it’s always important to make sure you can meet the conditions before taking it. Ensuring that a loan option is right for you can save you time, energy and money in the future.