5 Cheapest Ways To Borrow Money
Nearly everyone has found themselves in a situation in which they need fast cash. Whether it is due to a loss of income, an unexpected expense, or simply bad planning, being broke is not just uncomfortable but frightening. When you fear you won’t be able to pay your bills, you are most vulnerable to companies offering payday loans or other high-cost options that will leave you in severe debt.
The good news is that there are cheap ways to borrow money. Before you take out a costly loan, try one of these options.
1. Bank Loans
The most obvious route to take is also one that people today tend to forget about. Banks have become known as dinosaurs in the financial services industry, and the younger you are, the less likely you are to trust them. However, they are still likely to offer the best rates on personal loans. Even if you currently owe them money on a previous loan, they may be willing to open up more credit for you.
If your bank is not able to give you a loan, or if they only offer expensive options, speak to a credit union. Credit unions are particularly helpful for people who have bad credit, who will struggle to get loans with low interest rates from banks.
2. 401(k) Loans
Another option for people who need quick money or have bad credit would be to borrow from your 401(k). The idea of borrowing from your 401(k) is uncomfortable for many people, as they fear what impact this may have on their retirement. However, if you are confident you will be able to pay your loan back, borrowing from your 401(k) is one of the cheapest routes.
This surprises some people, as they assume they will have to pay taxes and penalties on the funds. However, that is only if you withdraw from your retirement fund. When borrowing from yourself, you are also paying interest to yourself, so even the cost of the loan comes back to you.
One of the benefits of a 401(k) loan is that there are no credit requirements and they are not reported to credit bureaus. You are limited in what you are able to borrow to $50,000 or 50% of the balance of funds (whichever is lower). Speak with your company’s HR to find out if a 401(k) loan is possible.
3. 0% APR Credit Card
Credit cards can be a very expensive source of credit. However, if you have a good credit score, you may qualify for a promotional 0% APR credit card. This is an account which provides funds with no interest for a set period of time. While introductory periods of 6 months are common, there are some companies that offer as long as 21 months of 0% purchases.
If your credit is not good enough to qualify for a 0% promotional offer, avoid using credit cards for quick cash, as high interest rates make them costly.
4. Personal Line of Credit
A personal line of credit is similar to a credit card, in that you only pay interest on what you actually use. They are offered by most banks and credit unions, and you can get lower rates than you would on a credit card. Your rates still depend on your credit score, but personal lines of credit are easier to qualify for than traditional personal loans and are unlikely to cost as much in interest.
5. Layaway/Store Credit
If you need money to cover a specific cost, ask the provider if you can pay in instalments. Many stores offer a buy now, pay later model, and this is becoming common with online merchants as well. If you require a specific service, speak to various providers to see if they are willing to let you pay over a specific time period. Many service providers will consider this if you are able to provide evidence that you are trustworthy. They want to get your business, even if it means they need to wait on payments.
This is essentially a way of borrowing money from the provider. They get to set the interest rate or provide a total cost that is higher than the cash price. They are unlikely to charge interest rates that are anywhere close to what you’d pay for an unsecured loan.
If You Need To Borrow, You Probably Need To Save
Lastly, if you’re looking at borrowing small amounts of money, you probably need some savings. It’s actually easy to scrape together a modest nest egg, even if you don’t have a lot of money. While getting this together is beyond the scope of this article, there are lots of ways to do it.
In fact, you basically just need an account to hold the money in and you need to earn some money to throw into the account. Its that simple.