The 6 Best Ways to Borrow Money – Newsweek Vault (2024)

Vault’s Viewpoint on Borrowing Money

• Personal loans, a line of credit, credit cards and peer-to-peer lending are a few examples of ways you can borrow money.
• Many borrowing options may offer quick applications, fast funding and work with less-than-perfect credit, but interest rates and fees may be higher.

1) Personal Loan Through a Bank or Credit Union

One common option for borrowing money is obtaining a personal loan through a bank or credit union. Banks operate as for-profit institutions. Credit unions, on the other hand, operate as membership-based, not-for-profit organizations, which means the profits get reinvested into the membership with additional benefits or lower prices—making it advantageous for members borrowing money.

A personal loan offers a lump sum of money upfront, and you can use the funds for a wide range of reasons—from debt consolidation to home improvement projects. Applying for a personal loan through a bank or credit union often requires a good or excellent credit score, and not all of them offer an online or mobile application process.

While you might have access to in-person customer service, traditional banks and credit unions often have longer approval timelines and even longer funding times.

Pros

• In-person customer service may be available
• Typically a straightforward application process
• Credit unions often have more competitive interest rates

Cons

• Often requires a good or excellent credit score for approval
• Longer funding times in some cases
• Local branches may not offer a mobile app or online applications

2) Personal Loan Through an Online Lender

If taking on a personal loan is your preference but you’re concerned about the slower funding time and higher credit score requirements from a bank or credit union, consider a personal loan from an online lender. Many reputable online lenders will work with applicants with fair or bad credit scores. Plus, most of them offer a quick online application process, quicker approval decisions and fast funding times.

There may be a price for the lower credit requirements and speed of funding, though—many online lenders charge higher interest rates and may have shorter repayment periods. Shopping around and comparing multiple lenders can help you find more favorable repayment terms.

Pros

• May have more options for lower credit scores
• Quicker funding times
• Streamlined digital application process

Cons

• Tend to have higher interest rates and limited repayment options
• No in-person customer service

3) Personal Line of Credit

Another option for borrowing money may be through a line of credit. Similar to personal loans, you can obtain a personal line of credit through banks, credit unions and online lenders.

A line of credit is typically unsecured, which means you don’t have to put up any collateral to borrow against it (such as a vehicle or real estate). Like a credit card, you borrow money from a line of credit as you need it and repay it with interest. As you make payments, you can keep reusing your credit line.

If you’ve established a checking account or savings account with a bank or credit union, you may find it easier to obtain a line of credit. Wherever you establish the line of credit, though, be sure to check the draw period, which is the amount of time you have to borrow funds. Depending on the terms of the line of credit, the draw period may only last two years or as many as 15 years.

Pros

• May have lower interest rates compared to credit cards
• You only pay interest on what you borrow
• You can access it as needed

Cons

• Banks and credit unions often require higher credit scores
• Online lenders will not have an in-person customer service option
• Lines of credit often subject you to additional fees on top of interest

4) Credit Cards

Using a credit card means borrowing money against your credit line. You can borrow money from the credit card company by either using it for purchases with a merchant or taking on a cash advance.

If you use a credit card for purchases and pay it off by your bill’s due date, you’ve borrowed money with 0% interest. If you’re unable to pay off the balance in full by the due date, you’ll end up paying interest charges, which currently average around 22.75%.

Cash advances, which allow you to borrow a lump sum of money against your credit line, often include much higher interest rates. Unlike standard purchases, the interest rate accrues daily, which makes a cash advance an even more expensive prospect.

Pros

• No application fees
• Quick access to funds
• May avoid interest charges if paid in full before the due date

Cons

• Borrowing too much can negatively impact your credit score
• You will have a borrowing limit
• Cash advances accrue interest daily

5) Peer-to-Peer Lending

Peer-to-peer lending (P2P) is a form of crowdlending. It enables individuals to lend and borrow money directly from one another. You can use a P2P platform like Prosper Funding, which facilitates the lending process between an individual borrower and a lender.

A P2P platform typically matches borrowers and investors, plus the loan servicing. Borrowers have access to personal loans without the traditional, strict credit requirements of banks and credit unions, and the investor can potentially earn a return.

P2P loans may have looser credit score requirements, but they can be more expensive, too. Not only can they have higher interest rates, but you may be charged origination fees or administrative fees, which can add hundreds of dollars to the overall cost of the loan.

Pros

• Applicants with less-than-perfect credit may get approved
• Quicker application and possible quick funding times
• May offer a wide range of borrowing and repayment options

Cons

• No in-person customer service is available
• Not available in every state
• May have higher interest rates and fees

6) Public Agencies

Another resource is through public agencies, particularly government agencies or non-profit organizations. Your local government or local organizations may have programs that offer need-based loans. For example, a local city government may offer a low-interest loan to low- or moderate-income households that purchase a home in an area the local government is trying to revitalize.

The specific requirements for these programs depend on the agency or organization, but they would likely have better terms. While many of these programs may offer lower interest rates or flexible repayment plans, the application process can be quite long and funding can take a while, too.

Pros

• Save money in the long run with lower interest rates or fees
• Might not require a credit check
• Multiple programs may be available in your area

Cons

• Likely has a residence or income requirement
• Long, lengthy application and funding process
• Takes time to research and identify opportunities