Need to Borrow Money? 9 Ways to Consider

Susan GuilloryUpdated March 13, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

It happens: You need money to pay for an unexpected expense like a car repair or broken water heater, but your bank account is a little low. You can’t put off the expense, but you’re wondering, how can I borrow money? Where’s the best place to get a loan?Read on to learn about the options for borrowing money—and finding the one that’s best for your needs.

What Happens When You Borrow Money?

While there are different ways to do it, how to borrow money generally works like this: You get a lump sum from the lender with an agreement on how much you’ll pay each month, the amount you’ll pay in interest, and how long you have to pay back the money, Lenders charge interest to minimize their risk in case borrowers don’t pay back the money. The interest is a percentage of the amount you borrow. So if you borrow $1,000 at 3% interest, you would pay $30 in interest—making your total payment $1,030.

How Frequently Can You Borrow Money?

You can borrow money more than once, but keep in mind that every time you take out a loan, it impacts your credit score. If you have too much monthly debt compared to your monthly gross income (known as your debt-to-income ratio), a lender may not want to lend you more money, since there’s a risk that you won’t be able to pay back multiple loans.

Advantages of Borrowing Money

The biggest advantage of borrowing money is that you’ll quickly get the cash to pay for whatever you need. This is especially helpful in emergency situations, like when your water heater breaks. Borrowing money with a personal loan can be advantageous because personal loans are flexible. You can use them for almost any purpose, including for medical expenses, such as financing weight loss surgery.Another benefit: When you take out a loan and make the monthly payments in full and on time, you may be able to build your credit and increase your credit score. Over time, this might help you qualify for better rates on loans.

Disadvantages of Borrowing Money

The biggest drawback to money borrowing is that you will pay interest on the amount you borrow. If you have great credit, the interest you pay may be low. However, if you have poor credit, you may have to pay high interest—even up to 36%‚—which can significantly increase the cost of borrowing. Plus, if you make late payments or miss payments, your credit score can be damaged. Another disadvantage is that borrowing money means you’ll have more debt to pay off. This may put a strain on your budget, so make sure to only borrow what you can afford to repay.

9 Ways to Borrow Money

Here are different options for borrowing money, with the pros and cons of each.

1. Peer-to-Peer Lending

If you think you’ll have trouble qualifying for a loan from a bank, perhaps because you have a poor credit score, you might want to consider peer-to-peer lending. Also known as P2P, these lending websites work with a network of investors who give money for loans. P2P loans often have less stringent requirements, which can raise your chances of qualifying.

Pros

You can get your cash quickly, and interest rates may be lower than other options like credit cards.

Cons

Some lending sites have repayment periods of just a few years, so you may need to repay a loan fairly quickly. Also, some peer-to-peer lenders may charge fees.

2. Personal Loans

There are many times when to consider using a personal loan, and needing money in an emergency can qualify as one of them. Not sure how a personal loan works? It’s fairly simple. A bank, credit union, or online lender provides you with a lump sum that you repay monthly, with interest, over several months or years. You can learn tips for applying for a personal loan to make the process easier.

Pros

There are personal loans for people with good credit, fair credit, and bad credit, so shop around for the best option for you. You can also typically get the money you need quickly.

Cons

Interest rates can be high if you have bad credit, which means you can owe quite a bit more than you borrowed. Rates can range drastically from one lender to another, so be sure to explore the options to find the best deal.Recommended: Guide to Divorce Loans and Their Uses

3. Credit Cards

Using a credit card is a way to borrow money right away and repay it over time.

Pros

Many credit cards offer rewards programs that allow you to earn points for purchases that you can use for cash back or travel perks.

Cons

Credit cards often have high interest rates. If you don’t pay off what you owe before the billing cycle ends, you can end up paying quite a bit extra in interest. Recommended: Guide to Financing Musical Instruments

4. Pawnshop Loans

Another option for money borrowing is a pawnshop loan. With this type of loan, you use something of high value, such as jewelry, as collateral, and a pawnshop gives you a loan based on that collateral. Typically you can borrow 25 to 60% of the resale value of the item, which you then repay.

Pros

No credit check is required for a pawnshop loan. It’s a quick way to get the money you need.

Cons

Pawnshop loans typically have very high interest rates. If you fail to repay the loan, you can lose the asset you used for collateral.

5. Cash Advances

You can use your credit card to get a cash advance. With some cards you have a PIN number and you can withdraw cash from an ATM.

Pros

This can be a fast option for getting cash if you already have a credit card. You simply go to an ATM and withdraw the funds like you would with a debit card.

Cons

Cash advances are typically capped at a percentage of your total credit limit (you may be able to find your cash advance limit on your credit card statement). You will have to pay interest on the amount you take out, and the APR is typically higher than the APR you pay for credit card purchases. There is also a cash advance or transaction fee.

6. Home Equity Loans

With a home equity loan, you take out money based on the equity you’ve built in your home. Your home is the collateral for the loan.

Pros

Rates are generally lower than they are for other loan options and the interest rate is generally fixed.

Cons

You need enough equity built up in your home—typically at least 15 percent— in order to qualify. You may also be charged closing costs. If you fail to pay back the loan, you risk losing your house.

7. Lines of Credit

Another option is a line of credit, such as a home equity line of credit (HELOC). This is a revolving line of credit that you can borrow from, up to a certain limit. Your house is the collateral for a HELOC.

Pros

You can borrow just what you need and pay interest only on what you borrow. The repayment term can be 10 to 20 years, giving you plenty of time to pay off what you owe.

Cons

You may need to pay closing costs. The lender can foreclose on your house if you don’t repay the loan.

8. Borrowing From a Family Member

If you have a family member who is able and willing to lend you money, you may be able to borrow from them.

Pros

You don’t have to undergo a credit check when you borrow from a relative. In addition, you may not have to pay interest.

Cons

You risk damaging family relationships if you don’t pay back the loan. Be sure to create a loan agreement specifying how much you’ll pay each month and how long you have to repay it.

9. Loans From Your Retirement Accounts

If you have a retirement account such as a 401(k) through your employer, the plan might allow you to borrow money from it. The amount will be based on the amount you have vested in your account.

Pros

There is no credit check, so your credit will not be affected. Any interest you pay is paid to yourself (since it’s your own money that you’re borrowing). You will not owe taxes on the money as long as you repay it on time.

Cons

If you fail to repay the loan in the specified timeframe, you will need to pay a penalty fee, which is usually 10%. You will also have to pay taxes on the outstanding balance.

Where Can You Typically Borrow Money From?

Now that you know the different options for borrowing money, here are the lenders you can borrow the funds from.

Private Lenders

Rather than going through a bank, you might want to work with a private lender who may be less strict about the requirements to qualify for a loan. Personal lenders usually charge a higher rate than a bank does. This might be a good option if you don’t have great credit.

Credit Unions

If you’re a member of a credit union, you may be able to get a personal loan from them with a low interest rate. If you’re not a member, it’s generally pretty simple to become one. Often, you just have to open a checking or savings account. Check with the credit union in question.

Banks

A bank is a common place to apply for and get a personal loan. Start with your own bank, but also shop around for the best rates and terms.

Insurance Companies

If you have a permanent or whole life insurance policy, you may be able to borrow against the policy. Check with your insurance company to see if you qualify.

Peers/Family

If you’d like to borrow from a family member (or friend), consider who might be the best candidate. In order not to damage the relationship, make your loan a business agreement with a contract that spells out the amount you owe and the repayment schedule.

Borrowing Money: The Takeaway

When you need money, there are many different options for borrowing it. Decide what makes the most sense for you based on your creditworthiness and how easy it will be to apply and qualify as a borrower. Also consider the requirements for repaying the money you borrow. Explore all the choices available to find the one with the best terms and lowest interest rate for you.

3 Personal Loan Tips

Shopping around helps ensure that you’re getting the best deal you can. Lantern by SoFi makes this easy. With one online application, you can find and compare personal loan offers from multiple lenders.
Don’t assume that if you have bad credit, you can’t get a personal loan. There are lenders who specialize in bad credit loans.
Watch out for lenders who advertise “guaranteed” loans. Legitimate lenders will want to know your creditworthiness before offering a loan.

Frequently Asked Questions

How can I borrow money?

Where can I borrow money from?

What are the advantages of borrowing money?

Photo credit: iStock/bob_bosewell

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About the Author

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.

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