9 Ways to Borrow Money

You have options when you’re in the market to borrow money. How do you choose?

The smart borrower understands what he or she needs from a loan, whether that’s a low interest rate, a flexible repayment plan, or the fastest way to get access to new funds.

Cheapest Ways to Borrow Money

Sad but true, it almost always costs money to borrow money. Outside of a family member or maybe a trusted friend, no one is going to give you the bucks you want or need, free of charge, no questions asked.

A 0% APR credit card, which we’ll deal with a little later, is a sort of exception, but it has strings attached, too. Every loan from a financial institution will come with interest added to your repayment. Fees often are a part of the transaction as well. That’s how the system works. It’s how lenders make their money.

But some loans will cost you more than others. For that reason, it’s well worth the time and effort to thoroughly research the options available to you before you sign on the dotted line. Shop around. Talk to as many different lenders as you can. Negotiate. And make sure you know what’s in the fine print of the loan agreement; that’s where the fee traps often lurk.

One very good rule of thumb about borrowing money: The higher your credit score, the better the terms of your loan will be. Credit scores range from 300 to 850; anything above 670 is considered good. If you’re already there, you’ll be offered a lower interest rate because you’ll be considered less likely to default on the loan. If you aren’t there yet, and aren’t in dire need of immediate funds, you’ll save some money in the long term by postponing the loan until you get your credit score up to snuff.

Look, we know that isn’t always possible. In fact, if you’re reading this, chances are you need to borrow money right now rather than the months down the road it’ll take you to muscle up your credit score. But it needs to be said. As you’ll see, a good credit score is a critical element in many loan arrangements.

OK, let’s get on with it and take a look at some of the least expensive ways to borrow money.

1. Personal Loan from a Bank or Credit Union

We begin with this generalization: Banks and credit unions usually offer lower interest rates than other types of lenders. That makes them pretty good places to start your search for a relatively inexpensive loan.

We can take that a step farther. A credit union is likely to offer an even better rate on a personal loan than a bank will. Why? Because credit unions, as not-for-profit financial institutions, channel whatever profits they generate back into benefits for their members. Those benefits take the form of better interest rates and lower associated costs of their services.

There’s a small catch, of course. To apply for a loan from a credit union, you have to be a member, and that often involves a fee.

Banks are for-profit institutions, but they’re still likely to offer interest rates and loan terms worth considering. Start with a bank where you already have an account; you might get a discount there on the rate and/or more flexible payment options. Plus, there’s a good chance your bank will pre-qualify you for a loan before you go through the application process, which means you’ll know in advance what the rate and terms of the available loans are.

You’ll likely need to apply for your loan in person, though some banks and credit unions allow online applications. Either way, the process isn’t terribly complicated.

But remember to shop around. Just because your bank knows you doesn’t mean it will offer you better loan terms than the one across town or down the street.

One other thing: Banks are among those financial institutions that are more likely to approve loans for people with strong credit scores. If that isn’t you, then a credit union might be a better option. The interest rate available to those with a credit score below, say, 630 is probably going to look better at a credit union than a bank.

2. 0% APR Credit Cards

We’ve been talking about finding the lowest interest rate for a loan. So how about no interest whatsoever? That’s what a 0% APR credit card offers. For a limited amount of time, usually anywhere from 6-24 months, it charges no interest on new purchases or balance transfers from another card. It’s a free ride … for a while. (Here’s where those attached strings come into play.) It gets costly in a hurry if you don’t pay off the balance on the card when that limited time period is up. To qualify, you’ll probably need a credit score of 670 or higher.

3. Buy Now, Pay Later

This works like an installment loan. As long as you make a down payment, It allows you to purchase something in the here and now either at a store or online, and then divide the rest of the cost into a series of payments – four payments is the most common number – spread out over some length of time. You might not be charged any interest on the outstanding balance, and you might qualify for ‘buy now, pay later’ item, even with a less-than-swell credit score.

4. Personal Lines of Credit

When you aren’t sure how much money you really need in the way of a loan, a personal line of credit from a bank or credit union might be worth exploring. Why? Because once you’re approved for a specific amount of credit, you only pay interest on the part of that total you actually use. But the ol’ credit score bugaboo applies here: The better your score, the lower your interest rate is likely to be.

5. 401(k) Loans

In “Hamlet,” Shakespeare has Polonius say, “Neither a borrower nor a lender be.” But Polonius apparently didn’t have a 401(k). Otherwise, he might’ve said, “Both a borrower and a lender be.” With a 401(k) loan, the borrower and the lender are the same person – you! You borrow money from your own retirement fund. You pay interest on the loan, but it goes straight back from whence it came: your retirement savings. The interest rates on 401(k) loans usually are low, and your credit score isn’t a significant factor in determining what the rate is. As the borrower, that might sound pretty good, though it’ll cost you in taxes, fees and the loss of compound interest on the amount you take out in the loan. As the lender, well, you have to trust that borrower in the mirror not to put your retirement savings at risk.

Fastest Ways to Borrow Money

Maybe you can’t wait. For whatever reason, you need a loan right here, right now. Speed is the priority. You’ve got options this way, too, even if borrowing money in a hurry often involves a less conventional transaction than a straightforward personal loan from a bank or credit union.

But …

Of course, there’s a ‘but’ or two. We’re watching out for you. We wouldn’t sleep well at night if we didn’t give you the caveats up front. Many of the fast-cash choices you’ll find out there in Lending Land come with additional costs and increased risks, especially if your credit score isn’t where you’d like it to be.

So, before we get to them, let’s re-up the advice we gave you at the top. Do the homework. Research the deal you’re about to do. Make sure you know the interest rate and understand the repayment terms. Investigate the fees.

If, after that, you’re comfortable with the loan, then here are a handful of ways to borrow money that will put the proceeds in your pocketbook sooner rather than later.

1. Online Lenders

Straight from your keyboard to your wallet? It isn’t quite that streamlined, but you don’t have to go to a bank or a credit union to fill out an application. Once you’ve identified a number of possible lenders, you work through their websites to shop around and determine which terms are most acceptable. It’s fast. It’s convenient. And if you’re sporting a subpar credit score, you’ll likely find more alternatives from online lenders than from banks. Some online loans come with an interest rate as low as 6%, but beware: Others can be as high as 36%. Once you’re approved, the funds are transferred into your account usually within 1-5 days.

2. Cash Advance Apps

A cash advance can be helpful when you need a smaller, tide-me-over sort of loan. A cash advance app makes it easy to get a chunk of your next check before payday rolls around. The apps generally don’t charge interest for the cash advance, but you’ll likely have to pay a subscription rate or other fees. (And here’s something a little weird: Some of them ask for a tip when you use them.) You can pay extra to get a cash advance right away. Otherwise, you usually see the money in 1-3 days.

3. Friends and Family Loan

What are friends for, right? Your buddies are supposed to be there when you need them, so why not take loans from friends and family when you’re starting a business or buying a home or a car or are otherwise just a little short? After all, friends and family might be a little more forgiving than banks about repayment terms. But please! Be professional about it. Let them know you’re good for it, and then be good for it. Write up a contract and honor it. You don’t want to turn your lender into a former friend or an estranged family member.

4. Credit Card Cash Advance

You use your credit card to buy a new pair of shoes, or headphones, or dinner at a restaurant, right? Well, you can also use it to buy money, either at an ATM (if your card comes with a personal identification number, or PIN) or at a bank. You likely won’t be able to get more than a couple hundred dollars at a time this way, but it’s fast cash. One thing, though: Credit card cash advances are also a fast way to run up some alarmingly high interest charges and transaction fees. The banks make you pay for this privilege.

Borrowing Options You Should Avoid

As we’ve examined the cheapest and fastest ways to borrow money, we’ve also tried to point out a few of the downsides that come along with the positives of taking out loans. There’s nothing wrong with taking out most loans. We just want you to be careful and weigh the risks against the rewards.

However, some loans are a must to avoid at almost all costs. They’re offered by sweet-talking lenders who know an easy mark in a borrower when they see one. They can make their loans sound too good to be true, and of course, they are. If you’re in a financial bind and you think your credit score isn’t going to help you with a conventional loan, these predatory lenders sense it and pounce. They’ll sugarcoat an offer that can be difficult to resist, even as it comes with a frightfully high interest rate and fees to match.

We’ll end, then, by outlining a handful of ways to borrow money that we DO NOT RECOMMEND. They’re debt traps. They won’t help you.

Payday Loans

A payday loan gets you a limited amount of money ($500 is common) almost immediately, with the requirement that you pay it back as soon as you get your next paycheck. But the cost is astronomical. Think your credit cards are expensive? They might charge you somewhere between 15% and 30% when you use them. The APR (annual percentage rate) on payday loans usually is in the 300%-500% range, which means you’ll likely find yourself worse off after the loan than you were when you talked yourself into thinking you had to have it. You’ll often find predatory lenders hawking these loans out of storefronts in low-income areas. Steer clear. Trust us: You can do better.

High-Interest Installment Loans

Consumer advocates have set the outer-limit bar for an affordable APR at 36%. If you’re looking at a loan with an interest rate higher than that, avert your eyes. Like payday loans, high-interest installment loans usually are offered by storefront lenders or slick online vendors who promise no-muss no-fuss fast cash without a credit check. You’ll get a handful of weeks or maybe months to repay it, bit by bit. If you don’t, or can’t, they’ll come back to you with a sweet-sounding deal to refinance, which likely will keep you digging your debt hole deeper and deeper.

Speak to a Credit Counselor Before Borrowing More Money

You can have any number of good reasons to take out a loan. Maybe you want to fix up the house. Maybe you need to pay for a move. Maybe there’s a wedding in the family, or a new car to buy. Maybe something unexpected has happened and you just need a little extra to get by. They’re all perfectly acceptable reasons to borrow money.

But there are some not-so-great reasons, too, starting with borrowing money to pay off debts you already have. That’s a quick way to put you into a downward debt spiral from which escape can be very difficult. If that’s where you are, then it might be time to speak with a credit counselor.

Credit counseling is an excellent starting point for finding the right debt-relief solution, especially when it comes from a nonprofit credit counseling agency certified by the National Foundation for Credit Counseling (NFCC). The service is free and will help you evaluate all your options, from creating a budget to filing for bankruptcy.

Credit counseling typically is done over the phone, though in-person and online options are also available. A counseling session usually lasts about 30-40 minutes, which will include, among other things, a discussion of your financial situation and a review of your credit report. The counselor is there to help you develop a personalized plan to solve your money problems.

What do you have to lose, besides that debt spiral? Make the call!