There are loads of ways to borrow money, but the best methods to borrow money all come down to your financial situation, the reason for the loan, and how quickly you want to pay it back. In this article, we will show you the 5 best ways to borrow money, so you can figure out which one suits you most.
1. Personal Loan
Personal loans are the most traditional way to borrow money. The reason why they have stayed around for so long is that they are a solid, understandable way to borrow money. They offer you a reasonable amount to pay back every month, and the lenders talk to you about what the best options are for you. For example, online personal loans allow you to ask for a personalised loan with a repayment schedule that suits your needs. If you cannot pay their monthly rate, you can extend the term time for a lower monthly cost. All of this you can do before you sign the contract.
If you are already with the bank you want to lend from, you will likely be given an APR discount or flexible payment options. This means the loan will be cheaper and more manageable than going with a new lender. The problem with these structured loans is around credit scores. If you don’t have a good credit score, then lenders will see you as a risk and won’t want to offer you an easy-to-handle loan. Instead, they will up the prices to match your risk level. Because of this, you need to be aware of what you are signing up for before you cross your Ts and dot your Is.
2. 0% APR Credit Cards
APR means Annual Percentage Rate. It is the cost of borrowing for one year. 0% APR means you will not be charged interest for borrowing money. Instead, you will only be charged for late fees, exchange fees or other fees the lender uses. 0% APR credit cards are normally offered to new customers as an incentive to join their bank. Because you can borrow money without paying an extra cost, as long as you pay back the money you have borrowed you don’t have to worry about charges. These are the cheapest deals on the market.
You might be thinking that it seems too good to be true, and you’re right. There is a catch. Lenders know that most customers will not swap banks. Once you open an account with someone, you will likely stay there forever. This means that once you finish your 3 years 0% APR credit card, and the letter comes through the post saying that your APR will go up, the bank knows that you probably won’t bother switching banks. This is where they are wrong. Use this knowledge to get the best deals out there. Every time your 0% APR ends, change to a new bank with the same cheap system. You will save money, avoid interest fees and only have to pay back what you have borrowed.
3. Buy Now, Pay Later
Buy Now, Pay Later are loans that come from the manufacturer or sellers of a product. They are used for items that most of us need in our day-to-day lives but cannot afford outright. For example, buying couches, refrigerators, freezers, etc. The idea is that you sign a contract and purchase the item in question and then either pay the lender back in more manageable instalments, or you can pay everything back on a specific day. The one-day payment options are normally organised for your payday, meaning that when you get paid, you can send the lender their money, and you don’t have to worry about having enough to pay them back each month.
The problem with Buy Now, Pay Later loans is that you often have to pay back a lot more than the item initially costs. Still, this type of loan will allow you to make more maintainable payments for items that you cannot live without.
4. Retirement Loans Or 401K Loans
Retirement loans allow you to borrow money from your future self. Technically you are not taking money out of your 401K, as you plan to pay yourself back. This means that you won’t be taxed or pay the penalty. Because you are borrowing from yourself and are only putting your own finances in danger, these loans are the cheapest on the market. They are normally priced at the primate rate plus 1%. The prime rate is the benchmark figure that every bank uses to measure loans. They are affected by the economic values at the time of a contract. The bonus of 401K Loans is that if you miss a payment, it will not come up on your credit score. This is because you are failing to pay yourself, not a bank, and therefore the lenders are not affected. However, this is also the downside. If you fail to pay your loan back, you will lessen your retirement fund and will lower the tax advantages, which should have been helping it grow.
5. Personal Line Of Credit
Lines of Credit are a mixture between credit cards and loans. They are perfect for people who know they need to borrow large amounts of money but are unsure of how much they will have to borrow. Borrowing from a credit card is normally more expensive than borrowing money from a loan (not including the credit cards with 0% APR), but borrowing from a loan means stating how much you will need.
With lines of credit, you will only have to pay interest on the amount you use, and so anything left untouched will not be included in your monthly payment fees.To get this level of flexibility, you will need an excellent credit score, as the bank needs to know that you can handle this much freedom.