Alternatives To Traditional Loans

If you have had trouble finding approval for traditional bank loans in the past, you may benefit from applying with an alternative lender. Borrowers may consider several alternatives to traditional loans, including personal installment loans, debt consolidation loans, and even Bad Credit Loans.

Here, you will get more information about the different types of funding available to a wide variety of borrowers. Learn about the different products available so you can see which one would work best with your personal budget! 

Alternative Loans To Consider When You Can’t Get Bank Loans

Thankfully there are plenty of financial products available for borrowers who may be unable to find an approval for more traditional loans. 

Personal Installment Loans

In lieu of bank loans, a personal loan such as an installment loan may be a great alternative. An installment loan is a type of personal loan delivered to borrowers in one lump sum and paid back in equal monthly payments. For quick approval, most personal installment lenders just require proof of income, proof of residency, government-issued photo ID, and the borrower’s bank account information so the lender can directly deposit approved funds. 

Credit Cards

For small recurring expenses, you may also rely on a credit card. With credit cards, borrowers have access to a credit limit that renews on a monthly basis. If you choose to use a credit card to take care of your expenses, try to keep your balance small and manageable if you can’t pay it off entirely. It’s easy for borrowers to accumulate an overwhelming amount of credit card debt if their spending goes unchecked.  

Credit Card Cash Advance

In addition to making standard purchases directly with your credit card, you may also be able to take out cash against your credit limit as well. You can request cash back using your credit card at most ATMs, banks, and other financial institutions. However, beware that interest rates on credit card cash advances are often higher than interest charges associated with regular credit card transactions. 

Balance Transfer Credit Card

If you have multiple credit cards or are dealing with overwhelming credit card debt, a balance transfer card may work for you. Balance transfer credit cards are meant to help people pay off accumulating credit card balances faster and potentially save money on interest rate charges along the way. Some signs that a balance transfer credit card won’t work well for you are if:

  • It will take you over three months to pay off your balances. 
  • You don’t have time to wait for your balance transfer to process. 

Personal Line of Credit

Personal lines of credit (sometimes referred to as a PLOC), work similarly to a traditional credit card in that borrowers may spend from a predetermined limit for a specific period of time. Borrowers also only pay interest on the amount of money they spend, not their entire spending limit. 

Peer-to-Peer Loan

Peer-to-peer lending, also called P2P lending, is a way for borrowers to access cash directly from an individual or business without another financial institution acting as the middleman. Similar to a broker’s services, P2P lending is often done via an online platform that connects borrowers to lenders.  

While P2P lenders can offer both unsecured and secured loans, unsecured personal loans are the most common lending product offered by this type of lender. It’s much rarer to come across secured loans offered by P2P lenders because they are typically backed by high-equity luxury goods. 

Home Equity Loans or Home Equity Line of Credit

Homeowners or property owners may be able to utilize a home equity loan for funding. A home equity loan or a home equity line of credit uses the borrower’s home or property as collateral. Loans that utilize collateral are known as secured loans. 


A 401(k) is a type of retirement account employees can add to over time. Many employees will also match a portion of an employee’s contributions to their 401(k), which acts as an additional incentive for employees to add money to their accounts. You can also borrow money from your 401(k) account before you retire, although you will have to pay interest rates, additional fees, and possible tax penalties. 

Employer Cash Advance

In extreme emergency situations, some employers may offer employees a cash advance on their paychecks. It is up to each individual employer as to whether they want to extend an employee cash advance or not, regardless of credit score, income, or other assets. 

Small Business Loan or Microfinancing 

If you are looking for funding to pay for business expenses such as payroll, inventory, or brick-and-mortar costs, you may consider business loans. There are also different types of business loans available, such as microfinancing or merchant cash advances, depending on your business needs and financial situation.  

Microfinancing is a way for small business owners to access a short-term loan when they are unqualified for more traditional loan options. However, like other alternative loan products, microfinancing can also come with higher interest rates and shorter repayment terms. 

Merchant Cash Advances

Merchant cash advances are a type of business loan where business owners pay back their balance using the cash flow from their profits. The more a business profits, the faster borrowers can pay off their merchant cash advances. But, merchant cash advances are also known for being quite expensive. So, before you even apply, make sure you establish a payment plan for how you are going to pay off your merchant cash advance. 

Car Title Loan

A car title loan is another type of secured loan that uses the borrower’s free-and-clear vehicle title as collateral. During the terms of a car title loan, lenders will sign onto a borrower’s vehicle as a lienholder, which gives the lender partial ownership over the vehicle until the borrower pays off their loan balance. 

Payday Loan

Payday loans are a type of quick cash advance that was designed to give consumers a bit of extra money while they are waiting for their next paycheck. Terms for payday loans are known for being extremely high, and terms are usually quite short. So, unless you can pay back your payday loan balance in full within about two weeks or less, this funding product may not work well for you. 

Pros and Cons of Alternatives To Traditional Bank Loans 

Before applying for an alternative loan, consider the possible benefits and potential disadvantages.  

PRO: Fast, Easy Application Process

Alternative loans typically come with a swift application process. Other traditional lenders may require lengthy applications or even in-person meetings before they will grant approval. 

PRO: Speedy Approval and Funding

With most alternative loans, you can apply, send your documents, and receive your approved funds within a few business days, or in some cases within a few hours!

PRO: Flexible Approval Requirements

While traditional lenders like banks will focus almost exclusively on a borrower’s credit score when granting loan approval, alternative lenders consider other factors. In addition to credit, alternative lenders will also consider income and the ability to repay the loan. 

PRO: Loan Diversity

Alternative loans also offer quite a bit of diversity when it comes to financial products. This makes funding available for people who come from a wide variety of financial backgrounds which may include poor credit, no credit, or even past bankruptcies. 

CON: Possibly Expensive

Since many alternative loans are part of the subprime market, they may be a bit more expensive than more traditional options. Alternative loans may come with added fees like prepayment penalties or balloon payments. Before you submit an application for any type of loan, make sure you ask the lender what additional charges will come with your funding. 

CON: Typically Shorter Loan Terms 

Many alternative loans come with very short loan terms. If borrowers don’t pay off their loan within their given terms, they may be stuck with high APRs or interest rates that make lowering and paying off their balance extremely difficult.  

CON: Generally Smaller Loan Amounts

While many alternative lenders are willing to grant loan approval to a wider range of applicants, they will usually only distribute a very small loan amount. 

CON: Potentially More Frequent Repayments 

Some non-traditional loans require borrowers to make more frequent payments than just once a month. Depending on the loan type, some lenders may require weekly or even daily payments. 

CON: Higher Interest Rates, Especially if You Have Poor Credit 

In addition to increased fees, small loan amounts, and brief payback terms, alternative loans may also come with higher interest rates, especially for borrowers who don’t have good credit. 

Non-Loan Alternatives To Consider When You Can’t Get Traditional Personal Loans

Depending on the amount of funding you are looking for and your current financial situation, you may find that you don’t have to take out a loan at all in order to cover your expenses. Below are some non-loan alternatives you may consider before applying for personal loans, a line of credit, or seeking alternative lending options. 

  • Clean up your budget: Do you currently keep track of your incoming and outgoing finances? Or, do you simply get your paycheck and spend until you have limited funds left in your bank account? Unchecked spending can lead to a significant decline in expendable income that could have been put toward better use for outstanding balances, bills, etc. 

If you do not have one already, set up a budget for yourself that lists all of your regular financial obligations. Next, compare your budget to your current income to determine how much money you should have left over after all your recurring expenses are taken care of. You can then use this leftover income to put towards additional financial endeavors, so you don’t have to take out a loan! 

  • Ask a trusted friend or family member: If you have a financially stable person in your life that you trust, consider asking them to lend you the money you need. When you borrow from a friend or family member, you can save a significant amount of money on interest rates, origination fees, and other additional charges that come with traditional loans. However, make sure you discuss a repayment plan, so you don’t put yourself or your friend/family member in an awkward situation. 
  • Have a garage sale: Another great way to get some extra cash in your pocket is to sell gently used items you have around your home that you don’t need or use. Chances are you have plenty of inventory in your house of clothes, appliances, decor, and maybe even furniture that you no longer have a use for anymore. Instead of letting that clutter take up unnecessary space in your home, sell it for a profit! You can have a garage sale or use websites like eBay, Amazon, or even Craig’s List to sell your unwanted items. 
  • Get a second job or side hustle: If you don’t have anything you are willing to sell/part with, you may consider getting another job or a remote side hustle from home. Working a second job from home could be a great way to earn the extra money you need without ever having to leave your living room!   
  • Investing: Consumers who have an expendable income and don’t need funding right away may consider earning their cash through investing. You can invest via stocks, bonds, and more. However, make sure to always follow the most important rule of investing, which is never invest money you aren’t willing to lose. Investing is a high-risk, high-reward way of earning money and should only be used by individual investors who are financially stable and responsible.  
  • Bankruptcy as a final resort: If you have just too many expenses to keep up with, you may consider declaring bankruptcy as an absolute last resort. Declaring bankruptcy means that you are officially stating that you no longer have sufficient funds to cover your recurring financial obligations. While declaring bankruptcy will significantly reduce the amount of debt you are responsible for, it will come at the expense of your credit score. After declaring bankruptcy, you may find that your credit score has dropped drastically, and it may stay that way for several years until you financially recover. 

How To Improve Chances of Approval for a Traditional Bank Loan in the Future 

Below are some tips you can take advantage of to improve your chances of approval with traditional lenders the next time you need a loan. 

  • Focus on repaying existing debt on time:  Make sure you are staying on top of your current balances and making all your due monthly payments on time. Payment history is the most impactful factor that can affect your credit score, and missing just one payment can negatively affect your score for up to seven years! 

If you have trouble remembering to make your various payments that are due, consider signing up for automatic payments to improve payment history on your credit report

  • Check your credit score and credit report: Keep tabs on your credit score by checking your credit report often. While hard credit checks impact your future reports and credit, you can request a soft credit check with no negative consequences to your credit reports. Being familiar with your current credit score and credit report can help guide you toward loans that may work well for your budget and steer you away from funding options that won’t. You can also see how your financial behaviors and habits are affecting your credit, so you can make changes to boost your score if necessary. 

While you may find it difficult to access a true interest-free loan, you have a much better chance of being approved for loans with lower interest rates when you work on improving your credit history.  

  • Limit credit applications: When applying for a new loan, try to keep your credit applications down to just one or maybe two if necessary. Submitting too many credit applications within a short period of time may have a negative impact on your credit scores and credit report. 

Peer-to-Peer Lending – Overview, How It Works, Pros & Cons | Corporate Financial Institute