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If a personal loan won’t work, here are three alternatives.
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Personal loans are often reserved for those with the best credit scores, but there are other options to borrow money if needed.
Using a credit card, getting a payday alternative loan from a credit union, or borrowing from family or friends are all options if you’re not able to get cash through a personal loan.
These options aren’t perfect: Credit cards can have high interest rates, and getting loans from family can be risky. Use them after you’ve searched your personal loan options and have used your emergency fund.
If you’re trying to make ends meet, borrowing money through a personal loan might not be an option.
A personal loan is not easy to get. They’re often only available to those with the best credit scores and good credit history and they’re unsecured, meaning that there’s no collateral available for banks to use to recoup money if you stop paying. If you have a poor credit score or a high debt-to-income ratio, you might find it hard to get a loan.
That’s not to say they’re completely off the table. Consider shopping around with a few different lenders before deciding that a personal loan won’t work, and dip into emergency savings before getting a loan. If you’ve searched around for a personal loan to cover your debts and can’t find one for you, here are three alternative options.
1. Payday alternative loan from a credit union
Payday loans aren’t good for borrowers. They often have incredibly high interest rates — the typical payday loan has an interest rate of over 400%, according to the Consumer Financial Protection Bureau.
Payday alternative loans, however, are a better option for a small loan. Offered through credit unions, these loans have a maximum interest rate of 28%, lower than some personal loan options. The amount available generally ranges from $200 to $1,000. Payday alternative loans have application fees capped at $20, and loan terms between one and six months, according to the National Credit Union Administration.
These alternative loans are an option for anyone who needs a small amount of cash quickly. While they’re only available to credit union members, joining a credit union — which often has membership requirements, like residence in a certain area — is usually very accessible These loans are regulated by the National Credit Union Administration, and are meant to help consumers avoid predatory lending practices at payday lenders.
2. A credit card
In typical circumstances, the best way to use a credit card is like a debit card: to spend only money you have, so you’re never accumulating debt. However, if you really need cash immediately, credit cards allow you to borrow money in small amounts at a time, and then pay it back. Know that they will be an even more expensive option than personal loans if you end up carrying a balance — your balance will accrue interest each month, and that interest compounds as well.
The average credit card has an interest rate of 18.43%, according to data from the Federal Reserve. It’s worth noting that a credit card’s interest rate offered varies based on several factors, including a person’s credit history. Interest rates can also change independently based on the prime rate that banks are charged to borrow.
If you do decide to cover expenses with a credit card, look for a card with the lowest possible APR — the lowest cost for borrowing. Ideally, you should pay off your balance in full each month. If you know you won’t be able to do that, consider a card with a 0% introductory APR, which won’t charge interest for an introductory period (but will resume charging interest once that period is up).
3. Borrow from family or friends
This option can be tricky, but it could be an option for anyone who has friends or family members willing to float them a loan. Borrowing from family or friends should really be a last resort, writes Luke Landes, a personal finance blogger and author at Consumerism Commentary. And, this option doesn’t come without risks — it could hurt relationships, writes Catherine Fredman for Consumer Reports.
There are some rules for taking this approach the right way. Financial planner Mary Beth Storjohann previously told Insider that she suggests making a written plan. “Put the parameters in place — time frame, interest rate, and when payments need to start,” she says. Storjohann suggests charging interest on the loans to help hold the borrower accountable, and make a small incentive for the lender.