Alternatives to traditional loans

Alternatives to traditional loans

If you have had trouble finding approval for traditional bank or credit union loans in the past, you may benefit from applying with an alternative lender. About 39% of borrowers prefer working with online lending companies.1 Instead of using traditional bank loans, many borrowers use personal 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! 

The Pros and Cons of Traditional Bank Loans

Borrowing from a bank requires a lot of red tape. According to a survey by The Federal Reserve Bank of Dallas, 71 banks had a significant drop in lending due to economic caution.2 Before you learn about some alternative financing options available, it’s essential to first learn the pros and cons of traditional bank loans. 

Established and reputable institutions.Stricter approval requirements, often based on credit score.
Potentially lower interest rates for qualified borrowers.Lengthy application processes, sometimes requiring in-person meetings.
Larger loan amounts might be available.Slower approval and funding compared to some alternatives.
Structured repayment terms with clear guidelines.Might not offer as diverse a range of products as alternative lenders.
Potential for long-term relationships with the bank, leading to other financial opportunities.Less flexibility in approval criteria, potentially excluding those with poor or no credit history.

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 approval for more traditional loans. 

Personal Loans

In lieu of bank loans, a personal loan may be a great alternative. A personal loan is 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 can access a credit limit that renews every month. The average credit limit varies by generation and income bracket. If you use your credit limit to cover your expenses, 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

A balance transfer card may work for you if you have multiple credit cards or are dealing with overwhelming credit card debt. 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:

  • 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

A personal line of credit (sometimes referred to as a PLOC) is a personal loan alternative and works similarly to a traditional credit card. Borrowers can spend up to a predetermined credit limit for a specific period. Borrowers that use a personal line of credit pay interest on the amount of money they spend, not their entire spending limit. 

Peer-to-Peer Loan

A peer-to-peer loan could help you get money despite a low FICO score. 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 Lines of Credit

Homeowners or property owners may be able to utilize a home equity loan or line of credit for funding. A home equity loan or a home equity line of credit (HELOC) uses the borrower’s home or property as collateral. Loans that utilize collateral are known as secured loans. But keep in mind that you risk losing your home if you fall behind on payments for a home equity loan or home equity line of credit. 

Employer Cash Advance

In extreme emergencies, 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 Micro Financing 

You may consider business loans if you are looking for funding to pay for business expenses such as payroll, inventory, or brick-and-mortar costs. 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. 

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. 

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. 

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, 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, you may consider remote side hustles 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!   


Consumers who have an expendable income and don’t need funding right away may consider earning their cash through investing. You can invest in stocks, bonds, and more. However, make sure to always follow the most important rule of investing, which is never investing 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.  

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

Below are some tips 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. If you have trouble remembering due dates, consider signing up for automatic payments to improve your 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 credit files and FICO score, you can request a soft credit check with no negative consequences to your credit reports. 
  • 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. 

FAQs on Traditional Loan Alternatives

What’s the difference between a personal loan from a credit union and a traditional bank?

A credit union is a member-owned institution, often offering personal loans with more favorable terms and lower interest rates, especially for members with poor credit. Traditional banks, on the other hand, might have stricter criteria and potentially higher rates for personal loans.

How does a debt consolidation loan differ from other personal loans?

A debt consolidation loan is specifically designed to combine multiple debts into a single loan with one monthly payment. This can simplify your finances and potentially offer a lower interest rate than the combined rates of your previous debts.

If I have poor credit, are payday loans my only option?

No, while payday loans are one option for those with poor credit, they often come with high-interest rates and short repayment terms. It’s worth exploring other alternatives, such as credit unions or certain online lenders, that might offer personal loans tailored for those with less-than-perfect credit.

How do monthly payment terms vary among alternative loan options?

Monthly payment amounts and terms can vary widely based on the type of loan, interest rate, loan amount, and loan term. For instance, payday loans typically require full repayment by your next paycheck, while personal loans might offer longer terms with fixed payments.

Can I use my retirement account as collateral for a loan?

Some retirement accounts, like a 401(k), allow you to borrow against them. However, there are often strict rules, potential tax implications, and penalties for not repaying the loan on time. It’s essential to consult with a financial advisor before using your retirement account in this manner.

Are there any alternatives to payday loans if I need quick cash?

Credit unions often offer payday loan alternatives with lower fees and interest rates. Additionally, some online lenders provide quick personal loans that might be more affordable than traditional payday loans.

How can I determine the total cost of a loan, including interest and fees?

To understand the total cost, you’ll want to look at the Annual Percentage Rate (APR), which includes both the interest rate and any fees. This will give you a clearer picture of what you’ll be paying over the life of the loan. Always read the loan agreement carefully and ask questions if anything is unclear.

CreditNinja: What You Should Know About Traditional Bank Loan Alternatives

If you find it challenging to get a traditional loan, know that you have alternative options! At CreditNinja, we offer unsecured loans for unexpected emergency situations. We offer fast financing with competitive rates. Want more information? Feel free to read our reviews from past satisfied customers!


  1. New Survey Research From Morning Consult │ Online Lenders Alliance
  2. Banks are spooked and getting stingy about loans │ NPR 
  3. Peer-to-Peer Lending – Overview, How It Works, Pros & Cons │ Corporate Financial Institute
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