8 best ways to borrow money

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In a Nutshell

If you want to borrow money, there are a lot of options out there — each with its own pros and cons. Whether you need to finance emergency medical expenses or home improvements, it’s important to look at multiple options to find the best one for your situation.
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There are several different options available to borrow money. Whether you’re looking for extra cash to consolidate credit card debt, pay a medical bill or take a vacation, the right choice for you depends on your financial situation.

We’ve rounded up eight different borrowing options, along with the advantages and disadvantages of each.

Let’s walk through each option so you know what to consider before you decide if borrowing money might be best for you.

  1. Banks
  2. Credit unions
  3. Online lenders
  4. Cash advance apps
  5. Cash advance from a credit card
  6. Buy-now, pay-later apps
  7. 401(k) retirement account
  8. Family and friends

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1. Banks

Pros of borrowing money from a bank

Banks often offer a range of options for borrowing money, from personal loans to mortgage options. Some bank loans come with perks — you may not be charged a loan origination fee, for example. An origination fee often ranges from 1% to 8% of the loan amount — lenders say it covers administrative expenses for processing your application and paying you the money.

You may also qualify for an interest rate discount — sometimes referred to as a relationship discount — if you’re an existing customer at a bank that offers this perk. Some banks offer loyalty discounts on personal loan interest rates if you maintain qualifying bank accounts.

Cons of borrowing money from a bank

Keep in mind that some big banks don’t offer personal loans at all, so you may have to look for an option outside of your bank. And some banks may require you to have a minimum of good or excellent credit to get approval for a personal loan.

See our picks for the best personal loans from banks.

2. Credit unions

Pros of borrowing money from a credit union

A personal loan from a credit union might be a better option than a personal loan from a bank. Why?

A credit union may offer lower interest rates and fees than a bank. Since credit unions are nonprofits dedicated to serving their members, their goal is to return profit to members instead of shareholders.

Some credit unions also offer payday alternative loans, which are short-term loans for small amounts designed to help members avoid costly payday loans.

Cons of borrowing money from a credit union

One drawback is that you must meet a credit union’s eligibility requirements in order to become a member. This can include residence in certain counties, a connection to a specific school or employer, or family ties to a current member.

3. Online lenders

Pros of borrowing money from an online lender

Online lenders don’t have the costs that come with maintaining physical branches. And they often offer the user experience that people have come to expect from digital loan applications.

Many online lenders promise fast funding, with money deposited into your bank account in as little as one or two business days if you’re approved.

Cons of borrowing money from an online lender

There’s a wide range in the types of loans you can get from online lenders. If you’re not familiar with an online lender, research its reputation and check with traditional lenders to see if they can offer better interest rates and terms.

Some online lenders offer loans with terms that are similar to payday loans, so make sure to read the fine print carefully before accepting an offer.

4. Cash advance apps

Pros of borrowing money from a cash advance app

If you find yourself quickly needing a small advance on your next paycheck to tide you over during a financial emergency, a number of companies offer small cash advances that can come with favorable terms compared to traditional payday loans.

These companies often have mobile apps, and they’ll advance you up to $500 a pay period if you meet qualifications.

Cons of borrowing money from a cash advance app

Some of these apps may come with a monthly membership fee, while others ask for optional tips to use their services. To use one of these apps, you may need to connect your bank account or share information about your paycheck — or the service may only be available to employees of certain companies.

See our picks for the best apps that loan money.

5. Cash advance from a credit card

Pros of getting a cash advance from a credit card

Using a credit card to access cash can seem like an appealing option. Since you already have the card, you don’t have to fill out an application or go through a credit check to get what essentially is a short-term loan against the line of credit available on your credit card. Plus, you can typically access the money quickly. If you are planning on getting the advance directly from an ATM, you will be required to use a credit card PIN, which you should be able to set up directly with your issuer if you don’t already have one in place. Alternatively, banks that do business with a specific issuer will likely offer cash advances from a credit card as long as you visit in person and can show a government issued photo ID.

Cons of getting a cash advance from a credit card

The simplicity of a credit card cash advance can come at a price. Some card issuers charge a fee to get a cash advance along with an interest rate that’s usually high. Also, most credit cards don’t offer a grace period for cash advances, meaning that the interest charges start the moment you withdraw the cash.

6. Buy-now, pay-later apps

Pros of borrowing money from a buy-now, pay-later app

If you’re looking to spread out a large purchase over several months, a loan from a buy-now, pay-later app is another option to consider. These apps partner with retailers and even airlines and hotels to help you finance these items.

Cons of borrowing money from a buy-now, pay-later app

You’ll want to consider any fees you may be charged for late payments — which may also affect your credit scores negatively.

See our picks for the best buy-now, pay-later apps.

7. 401(k) retirement account

Pros of borrowing money from your 401(k)

If your 401(k) plan allows loans, borrowing money from your employer-sponsored 401(k) requires no credit check and could be a low-interest way to quickly access the needed cash. Traditionally, a 401(k) loan allows you to borrow up to $10,000 or 50% of your vested account balance with a cap of $50,000, whichever is greater.

The loan must be repaid within five years, and the interest you pay on the loan goes back into your 401(k).

Cons of borrowing money from your 401(k)

Though accessing cash from your 401(k) sounds simple, consider some of the consequences. For instance, if you leave your job, you could be forced to repay the loan in full before your next federal tax return is due. If you can’t repay the loan, you might be hit with tax penalties.

And don’t forget that you’ll be missing out on investment returns on money you pull out of your 401(k).

8. Family and friends

Pros of borrowing money from family and friends

Getting a loan from a family member or friend may seem like an uncomplicated way to get cash when you need it. After all, a family loan might come with no contract — or a basic contract — and you might get a very favorable interest rate even without excellent credit.

Cons of borrowing money from family and friends

Things can get complicated if a dispute arises over repayment of the loan. What if you still owe $5,000 to Aunt Denise? That can cause a lot of awkwardness. Another drawback: Since your friend or relative can’t report your loan payments to the three major credit bureaus, you won’t reap any credit-building benefits.

Options for borrowing money

BanksDiscounts and perksNot offered at every bank
Credit unionsLow fees and ratesMembership requirements
Online lendersPotential for speedy application and fundingResearch is key — some online lenders offer not-so-great terms, and aren’t very upfront about it
Cash advance appsAccess your paycheck earlyPotential fees and not everybody qualifies
Credit card cash advancesGet cash quickly in a pinchHigh fees and expensive APRs
Buy-now, pay-later appsSpread a purchase out over timePotential fees and limited use
401(k) retirement accountNo credit checkMay not be allowed for your plan, plus risk of needing to pay back in full and potential investment losses
Family and friendsNo contract or credit checkNo option to build credit and potentially creates issues with personal relationships

FAQs about places to borrow money

What are common types of borrowing?

It’s common to borrow money from a bank, credit union or online lender. Depending on how you want to use the money, there are also other options, like using a buy-now, pay-later service or credit card to pay for certain purchases. Learn more about different types of loans.

What borrowing methods are best to avoid?

It’s best to avoid high-cost loans like payday loans or title loans, which can put you in a cycle of debt that’s difficult to escape. We recommend considering other options, like payday alternative loans or cash advance apps, before turning to such a costly choice.

Is there an app to borrow money?

Apps to borrow money include Earnin, Dave and Brigit, among others. These apps can come with fairly low-cost service fees or options to tip, but they’re not necessarily available to everybody. Learn more about the best apps to borrow money.

Next steps

Whether you need fast cash or a long-term loan, you should take the time to research loan options and ask questions before you borrow money. Here are some key questions to think about.

  • Why do I need the money, and which type of loan best fits that need?
  • What is the interest rate?
  • Are there any fees associated with the loan?
  • How long do I have to pay back the loan?
  • What happens if I can’t pay back the loan?
  • Will a creditor perform a hard credit check that will affect my credit scores?

Try to stay away from expensive forms of borrowing like title loans and payday loans if at all possible.

About the author: John Egan is a blogger, content marketer and freelance writer in Austin, Texas. He is former editor in chief at Austin-based startup LawnStarter, and he previously worked at the Austin Business Journal, Bankrate and S… Read more.