Working on debt consolidation or need financial assistance and wondering about the cheapest ways to borrow money? Fortunately, there are many funding options available for people looking for convenient and affordable loans. Depending on your credit score and general financial situation, you may find that some loan options are more beneficial to you than others.
Keep reading to learn about some of the most cost-effective ways to borrow money!
Do You Need a Good Credit Score To Get a Loan?
The financial products available to consumers generally depend on their credit scores, as well as a few other factors. The purpose of a credit score is to give lenders a general idea of your overall financial situation, so they can decide if you are an appropriate lending risk or not. Usually, individuals with higher credit scores are granted immediate approval, lower interest rates, and higher loan amounts, while individuals with lower scores may have a more challenging time finding approval. But, that doesn’t mean there aren’t funding options easily obtainable by bad credit borrowers!
Best Ways of Borrowing Money When You Have a Bad Credit Score
Fortunately, there is a way to borrow money when you have less than perfect credit. When you begin your loan search, ask yourself a few questions:
- Are you looking to work with a brick-and-mortar lender, or do you find online lenders more convenient?
- How much money are you looking for? This may help you decide if you are better suited for long-term or short-term financing.
- Are you willing to use collateral? While payday loans and certain personal loans won’t require collateral, a secured loan like an auto title loan will.
- Are you thinking of finding funding with credit card companies or a private/direct lender?
Below is more information on some of the most common ways people with bad credit may find opportunities for borrowing money.
One of the most versatile and accessible ways to borrow money with bad credit is via a personal installment loan. Installment loans are a type of unsecured personal loan distributed in one lump sum and paid back in fixed monthly payments.
When getting an installment personal loan, you can work with a loan agent to come up with a personalized payment plan to make sure you are always able to afford your monthly payments. Personal installment loans can also come with amazing borrower benefits like:
- Industry-wide competitive interest rates.
- High or low loan amounts, depending on your needs.
- Convenient refinancing options.
- All credit types are considered for approval.
Refinance an Existing Loan
If you already currently have a loan and are struggling to keep up with payments, you may consider refinancing. Refinancing is when you take a loan contract and completely replace it with a brand new loan agreement. You may refinance a loan to get better interest rates, extended terms, or even additional funding.
When you refinance a loan, you may either work with a new lender or the lender with whom you are already an existing customer. Lenders are often willing to work with their existing customers if it means keeping their business or avoiding loan default.
It’s also common for bad credit borrowers to turn to easy payday loans when they need quick and accessible funding. A payday loan is a type of unsecured loan that comes with short terms and a high-interest rate. While you may be able to avoid the high-interest rates that come with payday loans if you pay back your loan within two weeks or less, this is often not a reasonable turnaround time for borrowers.
Credit Union Loans
Credit unions are a financial institution that offers loans to borrowers from a particular workforce or geographic area. Credit unions are similar to banks, except credit unions are owned by borrowers while traditional banks are owned by profit-seeking investors. Since credit unions are non-profit organizations, they often offer special borrower perks that may be difficult to find elsewhere.
However, credit unions often have strict qualifications and may require their borrowers to work in a particular job field or live in a certain area in order to get approved for a loan.
Borrow From a 401K or Retirement Account
If you have a 401K or another type of retirement account, you may be able to use it to withdraw money and essentially borrow money from yourself. However, remember that you may have to pay taxes or other fees when you borrow money from a 401K or retirement account. That being said, you may only want to consider borrowing money from a retirement account if you are in a dire financial emergency with no other funding options available.
Should I Borrow Money or Just Use My Credit Card?
If you have a credit card, you may be considering just taking out a cash advance instead of borrowing money. But, keep in mind that the interest rate on cash advances is often higher than a regular credit card purchase. So, taking out frequent cash advances is a surefire way to rack up credit card debt. While there are options like balance transfer credit cards that may help offset that debt, it is in your best interest financially to avoid relying on your credit card too much.
Payday Loan vs. Personal Loan Explained
Wondering if you should get a payday loan or a personal loan? A better alternative to a payday loan may be an unsecured personal loan from a private lender. Why? Well, while payday loans and personal loans have many similarities, like easy approval requirements and fast funding, payday loans come with some pretty detrimental disadvantages you won’t find with a personal loan from a private lender.
For example, every payday loan usually comes with an extremely brief payback period. Borrowers who don’t pay back their payday loan around the time of their next paycheck are then typically stuck with having to pay interest at an extremely high rate. Comparatively, personal loans come with a competitive interest rate designed to fit with each borrower’s personal financial situation.
Ways To Get Extra Money Without a Personal Loan
There are also ways you can get extra money without having to take out a loan! Check out these alternatives to borrowing money.
Dip Into Your Savings
Depending on the severity of the expense you’re looking to cover, you may consider dipping into a savings account or emergency fund. There are so many advantages to having a savings account, one of them being the ability to essentially “borrow money from yourself” whenever you like! While you may not want to clear out your savings account completely for a purchase; using a portion can help relieve the financial burden of taking out a large loan.
Organize Your Budget
Think about how organized you are with your finances. Do you have a planned budget that lists out your necessary expenses and how much you should have left over for other purchases? If not, putting together a budget could be a major game changer with your overall financial situation. You may find that creating a budget helps you avoid impulse purchases or overspending, which can end up leaving your bank account with a ton of extra cash!
Have a Garage Sale
Another way to earn some extra money without having to borrow money is to have a garage sale. Go around your home and look for any gently used items that you no longer use or need. You may find that there are pieces of clothing, appliances, or even furniture that no longer have a place in your everyday routine. Instead of letting these things gather dust and become clutter around your home, spend an afternoon having a garage sale or make a listing with an online seller like Amazon, eBay, or Facebook Marketplace.
Find a Temporary Part-time Job
If you have the extra time, you may also consider getting a part-time job in order to get some additional income. You can work as a contract employee and pick your own hours or opt for a low-stress part-time job. By working a few extra hours or completing a few additional projects each week, you can enjoy having an increased cash flow without having to change any of your current spending habits.
Ask a Trusted Friend or Family Member
If there are absolutely no other options available, you may consider asking a trusted friend or family member for some extra money. Before you accept any money, talk with your friend or family member about a scheduled payback plan. That way, everybody is clear about how much money is being borrowed as well as how soon the friend or family member can expect their money back.
The Bottom Line: The Cheapest Way To Borrow Money
While there are many cheap ways to find money, it is important to be a thorough and responsible borrower. For your own financial protection, research and compare your options before committing to any one loan or financial product.
Have more questions about convenient ways to borrow money or the difference between frugal vs cheap? Check out the CreditNinja blog for additional free financial resources!