How to Borrow Money When You Really Need It

A short-term loan may seem like a good idea but they can actually cause you to fall further into debt. There are better ways to borrow money. Find out how.

Even if you're really good with your money, there will probably be a time when you need to borrow.

Life happens and we might find ourselves needing to borrow money when we least expect it.

If you're not aware of the options available out there for borrowing money when you really need it, you might make an unwise choice.

How much money would come between friends - personal loan statistics

The good news is, when you need a personal loan, there are solid options out there.

Even if you have a bad credit score, there are still loan options available to you

If you're one of those who are unsure where to go to borrow money, you'd be pleased to know that we've done the hard work for you.

We've come up with a list of solutions for borrowing money when you really need it.

Look each one over and pick the one with the best terms that suit you and your needs.

Avoid High-Interest, Short-Term Loans

High-interest loans are not the only way to borrow money when you need it quickly

There are much better alternatives to high-interest short-term loans for people who need to borrow money before their next paycheck comes.

Negative Consequences of High-Interest Loans

Huge interest even if you pay it back

Taking out a high-interest short-term loan can be your first misstep towards serious financial mess. If you need a year to pay it back, you could easily be looking at a debt ten times as big as what you originally borrowed.

Trust me on this one. I personally want to educate people about the better borrowing options out there so they don't make a mistake they'll literally be paying back for years.

Huge interest even if you pay it back

Let's say you get a 10-day high-interest short-term loan for $100 —considering the average interest rate for a payday loan is around 400%, if you didn't pay your balance in full, you could owe $400 after 10 days.

Get an Unsecured Personal Loan Quickly Online

No matter where you are, as long as you have an internet connection, you can apply for a personal loan from an online lending company.

It's fast, convenient, and easy. Put in your information and wait to see if you get approved.

Personally, there was a time I needed money quick and did not want to burden my family or friends. I also did not want the embarrassment of having to go into a local lender, so I chose an online lender and got funded quickly.

Less-than-perfect credit scores accepted. Even if your credit score isn't "Excellent" or "Very Good," you have a decent chance for approval with an online lender.

Peer-to-peer is a loan from people rather than a company. Many online lenders utilize a model known as peer-to-peer lending, in which multiple individuals, rather than banks, provide all or part of the loan.

Shop around for the best online loan

There are lots of online lenders out there. Some of the best known online are Lending Tree, Prosper, and SoFi.

Fixed term and fixed repayments. You'll pick a fixed term, usually 3–5 years. A single monthly payment will be set up.

Great interest rates. The interest rates offered by online lenders are highly competitive, so you should be able to find a great APR.

Get multiple quotes. Getting a quote for loan rates from these companies shouldn't hurt your credit score. It's wise to get the rates from lots of different lenders to compare.

Read the fine print. Make sure you also read the loan agreement carefully for other borrowing costs, like loan origination fees.

Here's an example of a typical loan from an online lender. SoFi offers loans from $5,000–$100,000 for 3, 5, or 7-year terms. The fixed interest rates it charges range from 5.49–14.24%.

If you have a "Good" credit score, you can get approved for an approximate interest rate of 9.99%. "Excellent" credit will get you the best rate of 5.49%.

A five-year loan for $10,000 with an APR of 9.99% would be paid back in $212.48 monthly installments. The total interest you'd pay would be $2,748.80.

After you submit your application online, you could get approved within a day and get the money in one lump sum within a week.

Get an Unsecured Personal

One issue with online loans is the unfortunate fact that there are lots of unethical lenders out there. If you're not comfortable applying for a loan from an online lender, you can still get a loan from a traditional bank or credit union.

Getting a Loan from a Bank

Yes, some banks still lend to people. Although many banks have completely pulled out of the personal loan business, some still lend money to individuals.

Outstanding Balances for Personal Loans 2005-2017

Citibank, Wells Fargo, and US Bank are all banks with personal loan programs.

Talk to a real human being. You can go apply in person at one of the bank's branches, or call and talk to a customer service representative.

Slightly higher interest rates. The APRs offered by the banks are a bit higher than the online lenders (Citibank's starts at 7.99% and Wells Fargo's rate begins as low as 6.74%).

Talk to your bank branch and see what they can do for you

A lot of us have been using the same bank since we were a teenager.

It's all about relationships. One advantage of borrowing from a bank is you can go into your branch and benefit from your prior relationship.

Trust goes both ways. You know you can trust them, and as a long-time loyal customer, the bank has some trust in you too. In fact, some banks only offer personal loans to customers with existing bank accounts.

Have a chat and get a good offer. Sit down with someone in the personal lending department and tell them about your borrowing needs.

You'll probably be offered favorable terms as a faithful bank customer.

Quick turnaround and reasonable interest. With some banks, the loan you apply for could be in your bank account the next business day.

The interest rates charged by banks are a couple of percentages higher than the online lenders.

The extra cost for borrowing $10,000 over the life of a five-year loan would be approximately $600 at a bank's rate of 11.99% compared to an online lender's 9.99% APR.

Getting a Loan from a Credit Union

If you have an "Average" or "Bad" credit score, you might not get approved for a loan from a bank or an online lender.

Regional and cooperative. Credit unions are not-for-profit financial organizations usually serving members in a particular area.

The ownership structure is often a cooperative one, where the people who bank with the credit union are also the owners.

More lenient approvals. Credit union loan officers will look at more than just your credit score. Other characteristics, like your history and standing with the credit union, will also be factored in when approving your loan.

Therefore, it's easier for someone with a lower credit score to get approved if there are other positive factors for the credit union to consider.

You need to become a member to access a credit union personal loan

In most cases, you need to be a member of the credit union before you qualify for an unsecured personal loan.

Jump through a few hoops. Members first need to meet specific requirements, for example by having an address in a particular region or being a member of a group like a military veteran.

Then you usually have to pay a one-time membership fee.

Finally, you make a bank account deposit of at least $25 and you can be considered for a personal loan.

You'll save a bit compared to a bank. The average APR banks charge for a $5,000, two-year, unsecured personal loan is 9.93%.

For credit unions, the average APR on the same loan is 9.54%.

You'll pay about $21.84 less in interest over two years by choosing a credit union.

Go online for lowest interest. If you're looking for the lowest APR, your best bet is to shop around for an online lender rather than going to a bank or credit union.

Borrow From Your Own House With a Home Equity Loan

If you are a homeowner who has been faithfully paying a mortgage for years, then this means you've been building equity in your home.

You're sitting on a loan. Your best bet for borrowing money when you really need it is probably a home equity loan or a Home Equity Line of Credit (HELOC).

A home equity loan is also known as a "second mortgage" or "home refinancing."

You put money in, you can take money out. What you're basically doing is borrowing back some of the money you've paid against the principal on your original mortgage.

In the case of a Home Equity Line of Credit, instead of receiving a lump sum loan, you have a revolving line of credit you can borrow from and pay back at will.

Choose a home equity loan to get the lowest possible loan APR

A home equity loan is a secured loan. That means your house is the collateral for the loan in case you default.

Those are pretty high stakes. Being unable to pay back a loan and losing your house would be a big deal.

Worthwhile risk for the lowest interest. Although the upside of a secured loan is an amazing interest rate.

The best loan rates going. The average home equity loan interest rate is around 5%. The best possible interest rate for someone with "Excellent" credit is closer to 4% (or even lower at 3.5% for a HELOC).

An affordable borrowing option. A home equity loan is a very cheap and easy way to borrow money when you really need it.

You can either negotiate a new loan with your existing mortgage lender, or get a home equity loan from other lenders like banks, credit unions, and online home equity loan providers.

Much more affordable than the unsecured loan options. Let's compare the home equity option to the unsecured personal loan options we looked at before:

Pay half the interest. At an average home equity loan interest rate of 5%, a $5,000 loan over two years costs just $265.36 in interest.

That's almost half of the average amount of interest charged by banks ($535.12) and credit unions ($513.28) for an unsecured loan of the same amount.

Sign Up for a Credit Card

And hone in the 12-month, 0% purchase APR intro offers

Remember two seconds ago when I said home equity loans/HELOCs have the best possible interest rates for loans?

I lied.

Home equity loans have the best possible interest rates for borrowing over terms of two years or more.

If you can pay off a loan within one year, an even better idea is to get a new credit card with a 0% intro purchase APR offer.

Types of Credit Applications by US Consumers

No interest for at least a year. The no-interest introductory periods are commonly 12 months. But it's not unheard of to come across a credit card offer with a 21-month, 0% APR intro period.

Use a credit card with a 0% APR intro period to transfer a balance and consolidate debt

Commonly, people really need to borrow money when their existing debts become too much to handle.

Usually, the 0% intro APR periods offered by credit card companies also apply to balance transfers.

Take the unpaid balances from high-interest credit cards and transfer them to the new card. You'll get 12–21 months to repay it without having to waste your money paying off interest.

Just be careful… When the 0% APR period is over, you'll be paying the sky-high interest rates charged by most credit cards.

You should also watch out for balance transfer fees, which can be 3–5% of the total amount being transferred.

Here's how a balance transfer works. Let's say you've got a $5,000 unpaid balance on one credit card and you're being charged 13.99% interest. You've got another card with a $3,000 balance that's being charged 15.99%.

If you took one year to pay back both of those debts in full, you'd pay $656.56 in interest.

If you transfer those balances to a new credit card with a 12-month 0% APR credit card, you'd save all the interest.

Even if you were charged a 3% balance transfer fee to move the $8,000 debt (which would cost you $240), you'd still be saving $416.56 in credit card interest over the year.

Borrowing money when you really need it should be easy and affordable

There are lots of reasons people need to borrow money. There are also lots of things people might not know about loans.

There are so many better solutions than high-interest short-term loans for borrowing money when you really need it. For many of the solutions listed here, the money can come through as soon as within a day.

Now that you have the knowledge, you can go out and borrow the money you really need.

Do you have any advice or tips for borrowing money when you really need it?

What's your experience with personal loans, 0% APR credit card intro offers, or home equity loans?

Share with us in the comments below!

Get a Personal Loan

Get a Personal Loan

  • All credit types welcome — good or bad
  • Quick answers and fast lender approvals
  • Funds deposited directly into your account

Leave a Comment