4 Personal Loan Alternatives You Should Know
Personal loans are convenient and easy to obtain, especially if you have a stellar credit score and a clean credit history. They are flexible, which means you can use them to finance almost anything, like car purchases, vacation expenses, emergency funds, and even another debt.
Although personal loans can be used for almost anything, they aren’t the cheapest ones. If you have a less than stellar credit score, the interest rate for a personal loan for you can be pretty high.
So, if you’re in such a place, these personal loan alternatives may help you.
Line of Credit
A line of credit is a flexible loan that you can get from a traditional bank or an alternative lender. It works similar to a credit card, which offers you a limited amount of funds you can use the way you want.
However, unlike a credit card, you will be charged interest when you borrow money from it. The interest rate for a line of credit varies from lender to lender, and it’s generally high, so taking one can be very costly. It’s an excellent alternative to a personal loan because it’s easy to produce funds whenever you need them. Instead of taking out a personal loan, repay it in a few months, then borrow again.
Peer-to-peer lending enables people to directly borrow money from others without the help of a financing institution or a middleman. P2P, as most people call it, has only existed since 2005, but it’s massively popular. P2P lending is primarily accessible online, and there are a lot of websites nowadays that offer this service.
How does it work? First, the investor opens an account on their chosen P2P lending website and deposits money to be dispersed as loan offers. The loan applicant will also have to create an account and will be assigned a risk category that will dictate how much interest they’ll have to pay. The loan applicants can choose among the available offers and seek approval if they find one.
The investor will then review the application and decide if they want to fund their loan. Some platforms also allow discussion between an applicant and the investor to allow for some bargaining in repayment or funds offered, etc.
Some P2P lending sites have specializations for financing. For example, StreetShares allows for business financing, and Patient Solutions offer loan products for medical expenses.
A payday loan works almost similar to a personal loan, except you have to pay it on your next payday. It can be obtained from websites or through a physical branch. The approval is easy as lenders only assess how much you earn and sometimes don’t even check your credit.
Once you’re approved, you can get the money through a check or have it deposited directly into your bank account. Payday loans come with a finance charge, but some call it interest. It’s a flat amount, and it’s based on how much money you borrow. Since payday loans have a short repayment term, they tend to have high APRs.
Despite the high costs and tendency to be predatory, payday loans are among the most popular types of financing in the US. It’s because, as mentioned before, it mostly doesn’t have credit checks and is fast and easy to get.
Home Equity Loan
You can get a loan against your home equity. The amount you can borrow typically depends on how much the house costs against the remaining balance you have on your house. The amount will be given to you in one lump sum, and you’ll have to repay monthly installments.
It’s a type of secured loan, and the collateral is the house. So, before you get one, you must think it through because if you fail to repay the loan, you may permanently lose equity, or worse, you may lose your house.
There are many personal loan alternatives that you can find on the internet. However, the ones listed above are some of the most popular and common ones. They have their pros and cons and are more suitable in specific circumstances. That said, picking the most optimal for your current financial situation is necessary.
Hera Viera is a writer that specializes in several topics like fashion, entertainment, and financing. She mostly spends her time learning new and easy ways to finance purchases and looking for websites that finance borrowers like CreditNinja. Hera mostly reads books on politics or browses through her social media in her free time. She can also be seen playing video games or creating content for her blog whenever she can.