The Best Methods to borrow Money

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The Most Effective Methods to Borrow Money
Do you need to borrow money? We look at the most affordable and fastest ways to obtain, plus two options to avoid.


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Last updated on Nov . 28, 2022

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It is generally better to pay cash instead of borrow money, but sometimes life throws a curveball and you have to look for other options.
If this occurs you should be aware that not all kinds of borrowing are made equal and there are some that have more disadvantages in terms of financial risk than others. If you are looking to secure the highest rate you can or you just require money fast, make sure to consider all choices and evaluate the risks.
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Most affordable ways to lend money

It is always an expense, but certain types of loans are more affordable than others in particular if you have good or outstanding credit (a score of 690 or more).
Here are your best options:
1. Personal loan from a bank or credit union
Credit unions and banks typically offer the lowest rates, or total cost of borrowing in personal loans. Loan amounts range from just a few hundred dollars up to $50,000 or more.
Some banks could offer an additional APR discount to existing customers. Flexible payment options may be available from a bank to help you to manage loan repayment.
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The majority of banks let you check the loan's rate and terms prior to when making a formal application. In the event that you do not have a good credit, however, it can be hard to get approved through banks.
may offer better rates than banks, especially for those with bad credit (a score below 630).).
The loan officers might take into consideration your financial situation in general instead of basing their decisions upon your creditworthiness. You'll have to be a credit union member before applying.
2. 0% APR credit card
A credit card with a 0% APR could be among the most affordable ways to borrow money if you can pay off the debt within the initial timeframe of the card. You generally need to have good credit to be eligible for.
Some cards offer an introductory period that ranges from 15 and 21 months, during which no interest will be charged on purchases.
Say you use a credit card with a 15 month introductory period to cover an unexpected expense such as a medical bill or car repair. You pay the balance off nine months later. The money you borrowed will be at no rate of interest.
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3. Buy now, pay later
" " plans allow you to buy products now and then pay them off over several installments, generally with no interest or charges. Many merchants offer these options during the checkout process, and occasionally in-store.
is a buy now, pay later company that never charges interest but may charge fees for late payments. The company charges interest according to the repayment term.
If you are able to get an option that is zero-interest, buy now, pay later may be a low-cost method to finance your essential expenses. Since it's easy to obtain, it could result in spending too much.
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4. 401(k) loan
Retirement loans allow you to take money out of your own. And unlike a withdrawal from your 401(k), you don't need to pay tax or penalties on a loan.
They also have some of the most affordable rates available even if your credit score isn't great. The interest rate is typically equal to what is known as the prime rate -- which is the standard used by banks to determine rates on consumer loan products -- and 2 or 1 percentage point. The interest earned returns into your savings account.
Another advantage is that the possibility of not paying a bill, your credit score won't take a hit since the defaulted 401(k) loans are not reported to credit bureaus.
The disadvantage of the 401(k) loan? You're borrowing from your future self, which reduces the retirement nest egg as well as its growth in a tax-deferred account.
5. Personal line of credit
are a hybrid between are a mix of a loan and a credit card, and are provided by certain financial institutions and credit unions. Like the loan, a lender will need to approve your application according to your credit score or income, as well as other debts. Like a credit card when approved you can only draw the amount you need and pay interest only for the amount that you use.
This is a great option for those who aren't certain how much they need to take out. Good or excellent credit customers have the greatest chance of getting the lowest rates.
Compare the cheapest ways to obtain money
Type



Pros



Cons



Personal loan from the credit union or bank


Lower APR in comparison to other types of personal loan lenders.
Discounts for customers who are current members.
Perks such as financial advice and flexible payment.
A variety of options are available, such as secure personal loans.



Need good or excellent credit.
You must join to be eligible for an credit union loan.
Prequalification may not be available.



Credit card with 0% APR


Pay no rate of interest on all purchases made during the promotional period.



You need credit that is excellent or great.
Must repay the balance in the shortest time frame.



Buy nowand pay later


There are no interest or charges with some plans.



Certain plans may charge interest or fees.
Can lead to overspending.



401(k) loan


Borrow money from yourself instead of a third party.
Low interest rates.
Interest paid goes back into your retirement savings account.
Missed payment does not hurt your credit score.



Reduces retirement nest egg as well as its ability to grow.



Line of Credit for Personal Use


Draw money based on what you need and pay interest only on what you actually use.
Perfect for those who are not sure about their the need for borrowing.



Credit score must be excellent or good.









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Fastest ways to borrow money

Typically, the simpler you can get the money however, the more risky and expensive it can be. However there are some great options:
1. A personal loan through an online loan provider
As compared to traditional lenders, such as banks or credit unions, online lenders are more convenient and speed, thanks to their online application and funding process. Some banks, in contrast they require that new customers visit a branch to finish the application.
You'll want to pre-qualify and evaluate lenders to determine the best APR, which will depend on factors such as the credit score and income. Online lenders do a soft credit test during pre-qualification therefore you are able to compare without impacting your credit.
Online lenders also cater to a wider variety of consumers. For those with poor or fair credit scores are more likely be able to work with an online lender instead of banks.
Find out if you're pre-qualified for an individual loan without impacting your credit score
Just answer a few questions to get personalized rate estimates from multiple lenders.


The amount of the loan
on NerdWallet








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2. Apps for loans
If you don't have a need that is significant You can offer small amounts of advance on your paycheck, sometimes instantly -- though you may pay an extra cost for faster service. Most commonly, the time to fund is within one to three business days.
The majority of cash advance apps charge a subscription fee or optional tips. This app offers cash advances ranging from $100-$750, does not charge interest, but it requires a minimum tip of $14 per advance.
3. A cash advance is a benefit of a credit card
There is also access to . Consider it like the use of credit cards in order to "buy" cash rather than goods or services.
Cash advances are typically restricted to around a few hundred dollars however, they're simple and fast to acquire. If your credit card is equipped with PIN, you can simply go to an ATM to cash out. If you do not have a PIN take your card and ID to a financial institution that offers advances via your card's payment network, like Mastercard and Visa.
While it's a quick process to put money in your bank account, it's expensive. You will likely experience a combination of cash advance fees as well as ATM or bank fees and interest rates that are more expensive than the rates charged for purchases. The cost will begin to rise in a matter of minutes.
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4. Loan from family or friends
You may have people in your network who can lend you money if you're in financial need. You'll avoid the sometimes lengthy formal application and approval procedure for other lenders. This is a great option for anyone who needs urgent cash or who is concerned that they can't qualify for the loan using their current credit score.
But approach it with caution. The lending of money between family and friends can create conflict. Therefore, put mutually agreed-upon conditions on paper and get the document notarized.
5. Pawnshop loan
Similar to the secured loan from a bank, it requires you to put up an item as collateral. Think jewelry, antiques or electronic devices. Once you take the item to the pawnshop, it evaluates its worth, condition, and resale value and then makes you an offer.
If you agree to the price that you are offered, you will walk away with the money and a pawn ticket. After repayment, you are able to take back your item. If you do not pay within the time frame -- 30 days in the average- the pawnshop keeps the item.
A Pawnshop loan doesn't require an loan approval process and can be a quick method of borrowing money without requiring your credit score. However, in along with the interest rates charged on the loan, pawnshops charge storage fees, appraisal and insurance that could result in an APR of up to 200%.
Check out quick and easy methods to take out a loan
Type



Pros



Cons



A personal loan from an online lender


Completely online application procedure.
Options available for fair and bad credit.



Higher APR based on your credit score.



Loan apps


Charge fees for optional charges.
Option to receive cash instantly.



Charge a fee for immediate accessibility to funds.



A cash advance is a benefit of the credit card


No application or approval process if you already have the card.
As easy as visiting an ATM or bank.
Immediate access to funds.



High fees and interest begin to accrue as soon as they are incurred.



A loan from family or friends


No application or approval process.



Could lead to conflict.



Pawnshop loan


No application or approval process.
Immediate access to funds.



Possibility of losing a prized item.









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Borrowing options to avoid

1. Payday loans
A is a type of small temporary loan that's meant to be paid back through your next paycheck. Although funds can be accessed almost instantly, payday lending is extraordinarily expensive and should only be a last resort. The cost of loans can be as high as $15 for every 100 dollars borrowed. This is equivalent to an APR of 391% for a 2-week loan.
The federal Consumer Financial Protection Bureau shows that the majority of borrowers wind with fees that are higher than they initially received as credit, which creates the cycle of credit.
2. High-interest installment loans
They are paid back over a period of weeks or months, and carry interest rates above 36%, which is the maximum rate that consumers consider affordable.
For example, a $1,000 loan with a 6-month period with a 60% APR will cost you $182 in interest and require an annual payment of $197. Similar loan with 20% APR will cost you $59 in interest. It's recommended to avoid high-interest installment loans when you can, as the higher APRs could cause problems in paying off these loans off.
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Paying back borrowed money

When you've decided on what you'll do with the money, make an . You don't want a financial setback transforming into the long-term, ever-growing debt.
Not sure where to start? NerdWallet recommends using the tool to prepare a budget as it's a simple and easy to follow strategy that covers your essential costs of living as well as debt obligations and savings.
Reduce the likelihood of borrowing by keeping track of your finances and building a healthy emergency fund to cover the eventuality.


Authors: Jackie Veling covers personal loans for NerdWallet.


Ronita Choudhuri-Wade covers private loans to NerdWallet.







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