The Best Ways to Borrow Money


We’ve all been there: The car breaks down unexpectedly, a medical emergency arises, or maybe there’s a business opportunity that’s too good to pass up. Whatever the reason, life has a way of throwing curveballs that make us scramble for immediate financial solutions. Yet, borrowing money isn’t as simple as just asking for it; the various options available come with their own sets of pros and cons.

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From traditional bank loans to innovative cash advance apps, the choices can feel overwhelming. We aim to simplify that for you by exploring the best ways to borrow money, with an eye on responsible financial behavior. By the time you’re done reading, you’ll be armed with the knowledge you need to make an informed decision that meets your needs.

Understanding Your Borrowing Needs

First things first: Let’s clarify what you’re looking for. Borrowing money isn’t a one-size-fits-all affair. The ideal option for you might not be the same for someone else, largely because your needs, financial standing, and long-term goals will differ.

Short-Term vs. Long-Term Loans

Are you dealing with a sudden expense that requires immediate financial attention, or are you looking to invest in something substantial like a home or a business? Short-term options like cash advances or payday loans can give you quick access to funds, but they often come with high interest rates.

On the other hand, long-term options like home equity loans or auto loans usually offer more favorable interest rates but might tie you down to long-term commitments.

Credit Standing

Traditional banks and credit unions look at your credit history closely when determining your loan qualifications, terms, and interest rate. A good credit score could help you secure a loan with a lower interest rate, longer term, and even a higher loan amount.

It makes sense to ensure your credit is in tip-top shape before applying for a loan. Request free copies of your credit report from all three bureaus (TransUnion, Experian, and Equifax) and review for errors, discrepancies, and negative marks. If you notice any inaccuracies, take steps to correct them.

Work to keep your credit card balances low and ensure you make your payments on time in the months before you apply for a loan. It all makes a difference.

But if your credit is less than stellar, there are still options out there for you, like online lenders who specialize in loans for people with bad credit.

Risk and Reward

Each loan type comes with its own set of risks and rewards. A 401(k) loan might seem like an easy option because it doesn’t require a credit check, but it puts your retirement savings at risk. A 0% APR credit card offers a no-interest borrowing window. Make sure you can pay off the balance before the introductory period expires, though. Otherwise, you could be hit with high interest rates, sometimes retroactive from when you opened the account.

Financial Health

Beyond your immediate need for funds, consider how the loan will impact your financial health in the long run. Will you be able to make the monthly payments? What happens if you don’t? Understanding the loan repayment terms thoroughly before you borrow can save you a lot of financial pain down the road.

A loan has the potential to deliver the funds you need immediately, while improving your financial health and credit score over time. Make sure you know what you’re getting into, though, before you commit to a loan.

12 Best Ways to Borrow Money

1. Personal Loan from a Bank or Credit Union

Personal loans from traditional banks and credit unions are a popular way to borrow money. To qualify, you’ll generally need a good credit score and a reliable credit history. Job stability and existing financial commitments might also be assessed.

If you have good or excellent credit, you can benefit from lower interest rates, especially at federal credit unions, which have a maximum interest rate of 18%. Repayment terms are flexible, ranging from one year to several years, although a longer term will mean you’ll pay more interest over time.

Pros and Cons

  • Pros: Lower interest rates for those with good or excellent credit, no origination fees at some institutions, and potentially longer repayment terms.
  • Cons: Stricter credit requirements, possible origination fees, and you might need to be a credit union member to get the best rates.

2. Personal Loan from an Online Lender

Online lenders offer the convenience of quick applications and speedy approvals. Qualifying criteria are often more lenient than with traditional lenders, making these loans more accessible to people with bad credit.

It’s essential to note that the interest rates offered by online lenders can vary significantly based on the individual lender, loan amount, term, and the borrower’s creditworthiness. Repayment terms vary, but they typically range from six months to 84 months. Shorter terms will have higher monthly payments but may result in paying less total interest.

Pros and Cons

  • Pros: Quick application process, options for those with bad credit, and various lenders to choose from.
  • Cons: Varied interest rates based on multiple factors, and potential origination fees.

3. Peer-to-Peer Lending

Peer-to-peer (P2P) lending platforms act as middlemen between individual borrowers and individual investors. These platforms offer a different kind of lending experience, often featuring quick approvals and more lenient credit requirements.

However, P2P loans can sometimes come with higher interest rates than those offered by traditional financial institutions. It’s also worth noting that P2P is not a traditional loan method and may not offer the same kinds of protections or regulations as a loan from a bank or credit union.

Pros and Cons

  • Pros: Quick approvals and options for those with bad credit.
  • Cons: Higher interest rates and may not have the same federal protections as other types of loans

4. Cash Advance Apps

Cash advance apps offer immediate access to funds, usually up to a certain limit. They typically don’t require a credit check, although you may need to meet certain qualifications, such as regular direct deposits into your bank account. They are convenient and quick, but typically require you to have a bank account to which the borrowed amount can be transferred.

While they offer immediate liquidity, these apps generally limit the amount you can borrow, often up to a couple of hundred dollars, making them unsuitable for larger financial needs.

Pros and Cons

  • Pros: Immediate access to cash and no credit check required.
  • Cons: Limited borrowing amounts and may require a bank account.

5. Personal Line of Credit

A personal line of credit functions similarly to a credit card, providing you with a pool of funds that you can tap into as needed. Unlike a traditional loan, you only pay interest on the money you actually use. A personal line of credit can offer flexibility but usually comes with variable interest rates that can go up or down based on market conditions.

Pros and Cons

  • Pros: Flexibility to borrow as needed and only pay interest on the amount borrowed.
  • Cons: Variable interest rates and may require good to excellent credit for approval.

6. 0% APR Credit Card

A 0% APR credit card offers an introductory period during which you won’t be charged interest on your purchases or balance transfers. This can be a cost-effective way to borrow money if you can pay off the balance before the introductory period ends. However, once the introductory period is over, the interest rate will revert to a much higher standard rate.

Pros and Cons

  • Pros: No interest during the introductory period and potential rewards from credit card companies.
  • Cons: High interest rates after the introductory period ends and requires good to excellent credit for approval.

7. Buy Now, Pay Later

“Buy Now, Pay Later” programs have surged in popularity, offering a convenient way to spread out the cost of a purchase over a set period. These programs often don’t require a hard credit check and are easy to use at the point-of-sale both online and in physical stores. However, failure to pay off the balance in the agreed-upon timeframe could result in high interest rates and fees.

Pros and Cons

  • Pros: Convenient and easy to use, no hard credit check.
  • Cons: Potential for high interest rates and fees if balance is not paid within the agreed-upon timeframe.

8. 401(k) Loan

Taking a loan from your 401(k) retirement account can be a quick way to access funds without a credit check. You’re essentially borrowing from yourself, so you don’t pay interest to a lender. Instead, the interest goes into your account. On the other hand, you miss out on any gains those funds would have earned in the market. Additionally, failure to repay the loan within the stipulated time could result in taxes and penalties.

Pros and Cons

  • Pros: No credit check. Pay interest back into your own retirement account.
  • Cons: Missed opportunity for investment growth and potential for taxes and penalties if not repaid on time.

9. Margin Account

A margin account allows you to borrow money to invest in stocks, bonds, or other financial products. This leveraging can amplify your gains, but it can also exponentially increase your losses. Interest rates for margin accounts can be competitive but fluctuate based on the brokerage and the Federal Reserve rates.

Pros and Cons

  • Pros: Potential for amplified gains and competitive interest rates.
  • Cons: High risk of significant losses, fluctuating interest rates.

10. Cash Advance from a Credit Card

A cash advance from a credit card gives you immediate access to cash but usually at a high cost. The interest rates for cash advances are often much higher than those for regular purchases, and the interest starts accruing immediately. There may also be a fee for the cash advance transaction.

Pros and Cons

  • Pros: Immediate access to cash and no application process.
  • Cons: High interest rates and fees, interest accrues immediately.

11. Loan from Family or Friends

Borrowing money from family or friends offers the advantage of potentially no interest charges or very low interest rates, along with flexible repayment terms. However, mixing finances and personal relationships can be risky, as it could strain your relationship if repayment doesn’t go as planned.

Pros and Cons

  • Pros: Low to no interest rates and flexible repayment terms.
  • Cons: Potential to strain personal relationships, lack of formal loan agreement could lead to misunderstandings.

12. Pawnshop Loan

Pawnshop loans provide a quick way to borrow money by using a valuable item as collateral. You’ll receive an amount based on the appraised value of the item, and you’ll have a set time to repay the loan and reclaim your item. Failure to repay the loan on time means the pawn shop will sell your item to recover the loan amount.

Pros and Cons

  • Pros: Immediate cash and no credit check.
  • Cons: High interest rates, risk of losing valuable items, and typically only suitable for small loan amounts.

Borrowing Options to Avoid

Payday Loans

Payday loans might seem like a quick fix for immediate needs, but they come with a catch: extremely high interest rates. These short-term loans often require you to pay back the full amount, plus interest, within a two-week period, making them a risky choice that can lead to a cycle of debt.

Auto Title Loans

Auto title loans allow you to borrow money against the value of your vehicle. However, if you fail to make timely payments, you could lose ownership of your car. These loans typically carry high interest rates and fees, making them another borrowing option to avoid.

Paying Back Money You Borrowed

Successfully paying back borrowed money is as crucial as choosing the right lending option. One misstep could lead to late fees, increased interest rates, or a negative impact on your credit score. Here’s how to stay on track.

Strategies for Timely Repayment

Understand Repayment Terms

For any loan you choose, understand the repayment terms. Is there a grace period for late payments? How frequently are payments due? What is the due date? Knowing these basic facts about your loan can help you avoid late fees or missed payments.

Automate Payments

Setting up automated payments through your bank account ensures that you never miss a due date. This strategy not only helps to maintain a good credit score but also avoids the extra costs of late fees.

Budget for Monthly Payments

Creating a monthly budget that accounts for your loan repayments can keep you on track. This proactive approach allows you to manage your finances effectively without any surprises.

Bottom Line

The best way to borrow money depends on various factors, including your financial need, credit score, and preferred repayment terms. Always do your due diligence and read the fine print before borrowing money, and remember, it’s always best to build up an emergency savings for unexpected expenses, so you can avoid the need for most loans.

Dawn Allcot
Meet the author

Dawn Allot is a personal finance writer and content marketing expert specializing in finance, travel, real estate, and technology. In addition to her work at Crediful, Dawn regularly writes for Bankrate, GoBankingRates, and The Balance.