How To Borrow Money: 9 Ways To Get The Cash You Need

When you need to borrow money, how you borrow it matters. Some options are easy to access but come with outsized risks, while others may be harder to qualify for but more affordable. Understanding how to borrow money responsibly will help you determine which option is right for your needs. 

9 ways to borrow money

There are a variety of options available if you need to borrow money. Personal loans, credit cards and lines of credit are typically easier for anyone to qualify for. Other ways to borrow money, like a 401(k) loan or through a public agency, may require you to meet specific eligibility requirements.

1. Personal loan

Banks, credit unions and online lenders offer personal loans with annual percentage rates averaging about 12 percent. If you have a healthy credit score, this could be your least-expensive unsecured way to borrow money.

Both banks and credit unions typically cater to those with good credit scores — a FICO score of 670 or higher. Since credit unions are not-for-profit, they usually offer the best personal loan rates, but you may need to become a member and open an account to be eligible to borrow.

In contrast, online lenders typically offer more options for people with bad credit scores than banks or credit unions do. Some even cater to those with no credit history — though you’ll really need to shop around to find the best bad credit loan rates.

Larger banks, federal credit unions and online lenders often have online applications for personal loans. Local banks and credit unions, however, may require you to apply in person at your local branch.

Pros

• In-person or online support
• Straightforward application process, often available online
• Some cater to lower credit scores

Cons

• Checking or savings account may be required with banks or credit union lenders
• Online lenders may have less favorable rates than traditional lenders

2. Personal line of credit

A personal line of credit is often unsecured and works similar to a credit card. You can draw up to a predetermined maximum and pay back what you borrow with interest. As you repay, you are able to borrow again up to your credit limit. Unlike credit cards, lines of credit often have interest rates closer to those of a personal loan.

Banks and credit unions typically approve personal lines of credit for those who already have a checking account. Online lenders may offer them, but it is less common.

A personal line of credit isn’t a great long-term borrowing plan because you can only continue borrowing during the draw period, which typically lasts two years. After, your line of credit will enter a repayment period similar to a personal loan.

Pros

• A credit line can be reused as it is paid off
• Interest due only on borrowed money

Cons

• Fees may apply in addition to interest
• High credit score typically required

3. 0% APR credit card

Some credit cards, known as 0 percent APR credit cards, offer introductory periods with no interest accrual. (This is different from a deferred interest offer, in which interest begins to accumulate from the date of purchase but you don’t have to pay it if you pay down your balance in time.) The introductory period usually lasts anywhere from six to 18 months, which means you can spend within your credit limit without paying interest.

This can be one of the cheapest ways to borrow money, but it’s not the best option for everyone. If you don’t pay off your credit card within the introductory period, you may be faced with a hefty interest rate after the period ends.

It’s a huge risk to borrow money this way if you don’t know how you will pay it off. It is also difficult to qualify for a credit card with a 0 percent interest rate. There are other low-interest credit cards you may want to consider if you aren’t able to qualify for a zero percent APR card.

Pros

• No interest paid during the introductory period
• Allows for greater spending flexibility

Cons

• Missed payments could forfeit the introductory period
• Usually difficult to qualify
• May have high interest rates beyond the introductory period

4. Peer-to-peer lending

Peer-to-peer (P2P) lending is a way to connect individual lenders with individual borrowers. P2P lenders like Prosper facilitate loans and act as an alternative to a traditional bank loan. These types of lenders operate online, similar to online lenders, and the application process can typically be completed in just a few minutes.

P2P loans may have more options for borrowers, and some will approve loans to those with lower credit scores. While traditional banks require a credit score of at least 670, P2P lenders often have a minimum credit score well below that.

However, P2P loans are more expensive. They often have more fees than banks or even online personal loans. In addition to a higher interest rate, expect origination fees and administrative fees that reduce the total amount you are able to borrow.

Pros

• More options for lower credit scores
• Quick online application

Cons

• No in-person customer service
• Not legal in every state
• Potential for high fees and slow turnaround

5. Buy now, pay later

The buy now, pay later (BNPL) model allows you to finance your purchase and pay it back in set installments. Companies like Affirm and Klarna partner with thousands of retailers to offer you the option to buy something now and pay it back on your terms. You make a small down payment, usually 25 percent of the full price, and pay the rest back over time, usually every other week.

Many BNPL services have additional installment loan options that charge interest on your purchase, so it’s important that you understand the terms of your agreement. Interest rates on longer repayment plans can be higher than other loan types, making them an expensive choice if you can’t repay quickly.

BNPL products also aren’t without their problems. According to the Bankrate Buy Now, Pay Later Survey, 49 percent of users have experienced an issue when using a buy now, pay later service — including overspending and missing payments.

Pros

• Can skip interest if paid off in four installments
• No late or hidden fees
• No impact on credit score with timely payments

Cons

• Often limited to partner retailers only
• Interest rates range as high as 15 percent
• Can encourage bad spending habits

6. Cash advance apps

Not to be confused with a credit card cash advance, these are cash advance apps — also called early payday apps — that allow you to borrow money and repay with a future paycheck. Though they can be helpful for emergency needs, you should only use them if you have a feasible plan for quick repayment.

Pros

• Quick, convenient access to funds before next paycheck
• Low or no fees for most apps
• Some offer overdraft protection

Cons

• May encourage poor spending habits
• Some include fees
• Could lead to a debt trap without a fast plan for repayment

7. 401(k) loan

A 401(k) loan allows you to borrow from your retirement savings account. Unlike a 401(k) withdrawal, there is no penalty for taking a loan out from your account — and the interest you pay on the loan goes back into your retirement account.

Each retirement plan has slightly different rules for 401(k) loans, though they may allow you to borrow up to 50 percent of your savings. You typically have to pay back the loan within five years, and depending on your plan, you may only be able to take out a loan a certain number of times. And if you leave your job, you may owe the full balance immediately.

Pros

• Interest paid goes back into your account
• No withdrawal penalty

Cons

• Sacrifices potential growth during loan term
• Faster repayment required if you leave your job

8. Margin account

A margin account is a brokerage account where the broker-dealer lends cash to the investor using the account as collateral. It can also be used for a loan to cover non-investment costs over a short period of time. Regardless of how you use your margin account, you will have to pay interest on the amount you borrow.

Borrowing on margin can result in a gain if the securities invested increase in value, but it can also result in greater debt if they decrease in value. For example, let’s say you invest $25 and the broker lends you $25 to invest a total of $50. If the price of the stock goes up from $50 to $60, you gain $10, meaning you now only owe $15. But if the price of the stock goes down to $40, you owe a total of $35.

Pros

• Lower rates compared to other borrowing options
• No additional fees to pay

Cons

• Interest rates may change
• Potential for increased debt if value of securities drops
• Complicated to understand and use wisely

9. Credit card cash advance

A credit card cash advance is a short-term cash loan that allows you to borrow money against your credit card’s limit.They generally have a higher interest rate and fees than your standard purchase APR, and interest starts accruing immediately. While this shouldn’t be your first option, it’s still a safer choice than a payday loan.

Pros

• Convenient if you have available funds on your credit card limit
• You can get the cash quickly
• It can usually be requested online

Cons

• High fees
• High APR (close to 30 percent)
• Can only borrow 20 to 30 percent of the available credit limit

Bottom line

If you are looking for the least expensive option to borrow money, you should prequalify for a variety of these options and see which offers the best rates. Consider your reason for borrowing money and shop around with different lenders and types of loans to compare the best options.