I am going to share best ways to borrow money. I will share a method that helps you to borrow money from banks, Credit Unions, Peer to peer lending and credit cards.
Best Ways to Borrow Money – Top 7 Ways
Well, here’s the summary: Half of the world’s net wealth belongs to the rich which constitute only 1% of the world’s total population; while others grapple with the remaining. In essence, there isn’t enough money to be spent by the remaining 99% population. Hence, there has to be a way to make financial ends meet – borrowing.
It is nearly impossible for the average adult to not borrow money at one point or the other. Loans serve a wide range of purposes like daily expenditure, business operations, education financing, and purchase of cars, properties or equipment.
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Whatever the reason for your loan, there are numerous lenders to choose from. Banks, credit unions and other traditional financial institutions aren’t the only options available to you. Thanks to the age of the internet and technological advancement which the world has recently greeted, you can access long and short-term loans from a plethora of other platforms.
All these lenders, including the aforementioned banks and financial institutions, will be examined in this piece, along with their unique loan services. Lets discuss about the best ways to borrow money.
Banks
The Banks are one of the best ways to borrow money. Banks are the oldest financial institutions known to human society. Traced as far back as medieval times, banks have loans as one of their prime services. They basically take your money (as deposits) for redistribution in form of financial services.
The barter system was the earliest concept of banking, but in recent times, banks operate in a wider, sophisticated manner, giving out loans like personal loans, mortgage loans, car loans, and business loans to their qualified customers.
Many borrowers prefer to take loans from their banks because of the trust that exists in such institutions as a result of a past relationship. In return, banks favor only customers with good credit and a track record of doing transactions with them.
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When it comes to taking loans from banks, there are a couple of pros and cons involved.
At the top of the list of advantages is seamlessness. Taking loans from banks is becoming increasingly easier in this jet age. Because of the competitive market, banks work extensively on making their loan services more attractive than those of others to potential borrowers. Customer service representatives can be approached in local bank branches for assistance or called on the phone to answer necessary questions. There are notarized agreements signed between the lender (the bank) and the borrower to foster trust between both parties.
As many banks are private-owned entities, their application and service fees are a major discouraging factor. Interest rates vary from bank to bank, but they are generally on the high side. Apart from the lack of subsidized interest rates, the borrower stands the risk of a sudden change in interest rates and loan repayment procedure if the bank sells the loan to another bank.
Credit Unions
They are like banks, but more like cooperative institutions, owned by their participants. They provide the same services as banks do, especially loans. They are tax-exempt enterprises that only give out loans to their members.
Credit unions have been around since the mid-1900s, beginning in Germany, and spreading to parts of France, Italy, England, the Netherlands and other parts of the world subsequently.
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An important perk of being a member of credit unions is access to loans at virtually nonexistent additional fees, or cheap at least. Unfortunately, credit unions do not have diverse loan packages like mainstream banks do, and they are often incapable of giving out hefty loans. Also, loans are exclusive to members only, and after a proven history of financial relationship with the organization.
Peer-To-Peer Lending (P2P)
When in need of a loan, certain online platforms exist to link you with potential lenders who each contribute small portions of the money until it forms the whole you need. Consider this as some sort of crowdlending; that is what peer-to-peer lending is about. Interest rates, usually low, are set by individual lenders and the borrowers are typically chosen based on credit score.
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Business and personal loans can be taken using this method, but business loans are often given better consideration. While P2P lending may be a viable alternative when other avenues are inaccessible, there is no guarantee that the borrower will be able to raise all the money needed. Also, lenders are at high risk of bad debts if the wrong choice of a borrower is made.
P2P sites are known to incur extra costs on transactions, and to avoid heavy charges, research your choice platform before you proceed.
Credit Cards
Credit card loans are basically short-term cash advances, usually expended in emergencies. If your payments are timely, you may get a slightly bigger loan at subsidized or zero interest rates. If not, you are at risk of surging debt and a bad credit score.
Credit card companies offer loans that should repay as soon as possible, and not taken out too often. Every time you use a credit card, you are taking a small loan as the credit card company covers the cost of whatever you a paying for. I don’t consider credit cards as best ways to borrow money. But when in need take this as last option.
401(k) Plans
This is borrowing from the money you have saved up during your years of working. This plan is put together by employers for employees, so you may refer to it as a retirement plan on a tax-free basis. Your loan limit is 50% of the amount you have saved up with a window of up to five years for repayment. In this category, there are no underwriting and application fees involved.
If the need arises for the borrower to take it all out permanently before retirement, the borrower incurs an additional 10% interest rate. The interest rates on 401 (K) loans do not go to the employer or a third party, it goes back to the borrower. Different structures are in place for different organizations, but common practice is preventing the borrower from making any more contributions to the plan until the debt is fully settled.
Margin Accounts
These are brokerage accounts that grant their customers (investors) access to loans to purchase securities, using the borrower’s equity as collateral. Brokerage firms give out these loans based on the amount of equity that the potential borrower possesses, and in the often likely event that the value of the borrower’s security declines, the firm will request additional equity from the borrower to make it up, or sell the borrower’s investments.
On a more positive note, margin accounts charge relatively low interest rates compared to others, and with the right amount of equity for collateral, it is easy to qualify for a sizeable loan.
Financing Companies
These companies give out general and specialized loans at competitive rates. Loans gotten from financing companies can be long term or short term depending on the borrower’s purpose. It does not take much to get qualified for a loan from a financial company, especially with good credit history.
On the flip side, loans offered by financial companies are not available to a wide range of borrowers per time, and there are limited customer-friendly services like ATMs or additional services.
Public Agencies
The Public Agencies are still the best ways to borrow money. Often tailored to give out specialized loans, public agencies; usually quasi-public entities are another good option for potential borrowers – if you do not mind the arduous procedures and paperwork. Government agencies that give out loans to cater to mortgage, educational and personal needs are very thorough in procedure to lower the risk of bad debt.
Consequently, you have to put up with meticulous financial background checks and a long list of qualifications for a loan. Qualified borrowers enjoy the perks of subsidized interest rates and flexible payment schedules.
These government-sponsored entities are a no-no if you are looking to get short-term emergency loans.
Where can I Borrow Money
Thanks to the ever-dynamic and competitive financial market, there are tons of places to consider when you want to take a loan for any purpose; be it a medical emergency, a vacation, debt consolidation, or home expenditure. While it is important to not put all your eggs in one basket, there is no gainsaying that the massive range of lender options available to you might pose quite the challenge, especially if you are new to the loan turf. Don’t fret; we have done due diligence and come up with eight great options for you as a guide.
The essence of this is to familiarize you with the best places to look in should you need a loan. Along with each mention are the pros and cons of choosing each one. Every option has its downsides, so, it is up to the potential borrower (that is you), to decide which one you can put up with; considering the amount you have in mind, the purpose you want your loan to serve, as well as the urgency of the situation. For this piece, we shall be taking a look at the following credible lenders:
- Banks
- Credit Unions
- Online Lenders
- Payday Lenders
- Pawn Shops
- Credit Card Companies
- Family and Friends
- 401 (k)
Let’s have a go at it, shall we?
Banks
Because they are one of the oldest players in the game, banks have remained a go-to for many borrowers for many decades. Another important reason why banks are preferred above all other lenders is the fact that there are no additional costs like origination fees involved. Origination fees may constitute up to 8% of your requested loan amount, and lenders that charge those claim that it for administrative expenses incurred in the process of loan approval and disbursement. Banks charge none of that – only interest.
Another perk to interests from bank loans is that you stand a chance of getting interest discounts if you have a good credit history with the said bank as an existing customer. This is called “loyalty” or “relationship” discount. On rare occasions, loan interest discounts are given as promotional perks. While all of this sounds very juicy, it is highly noteworthy that not all banks give loans, and not all banks will give you a loan. You stand much lower chances if your credit score is anything short of excellent.
Credit Unions
With the increasing complexities of bank loans, a viable option is credit unions. They typically offer much lower rates than banks do and if your loan is a personal loan (where you don’t need a bulk sum), this is much more worth your consideration. Credit unions are like cooperative groups and typically non-profit organizations. Your surest eligibility bet is active membership or at least a strong connection to a member.
The latter doesn’t always work as some credit unions insist that one must be a member to benefit from their loan services. Credit union memberships are however not always a stroll in the park. Many of such organizations have certain qualifications that one must meet to attain membership. This could include residence in certain areas or communities, or belonging to a certain social group, or working in a certain place.
Online Lenders
It is an open secret that the world is at the most technologically and digitally advanced stage it has ever been, and with this comes the emergence of an alternative to traditional money lenders like good old banks, or credit unions – online lenders. As implied by their generic name, these lenders usually have very little or no physical presence; all transactions from start to finish are conducted on the internet.
Renowned for quick approval and disbursements of loans to millions of people across the world on different platforms, the growing acceptance of this category of lenders has led to a spring-up of more options to choose from. Depending on the platform you choose to transact with, you may get your loan in hours, or a maximum of forty-eight hours after application, not to mention the incredible UX. This category, just like the others, is not without disadvantages. Ensure that you protect yourself from identity thieves and cyber criminals by researching your desired platform well before transacting with it. You can also consider many other legitimate options for better interest rates and more flexible repayment schedules.
Payday Lenders
You take a payday loan to cater to an unprecedented financial need; to be repaid on your pay day. Pay day loans are often given in small amounts only; typically $500 and less. Despite the convenience of this type of loan service by online lenders and other platforms, payday loans are considered very risky.
This is as a result of the high-interest rates they incur, not to mention the surging charges that pile up every day if the borrower is unable to make timely payments. Payday loans are said to be the genesis of debt crises for many borrowers and should be a last resort. Payday lenders give snappy loans in small amounts, so, they are best suited for emergency needs. We also highly recommend that you take payday loans that you are capable of timely repaying.
Pawn Shops
Pawn shops offer loan services that are quite similar to those of payday lenders, but with a collateral item that you pawn. The value of this item is commensurate with the loan amount you are eligible for. A perk of taking loans from pawn shops is zero paperwork. There is no check on your credit history or application process. Your loan request is initiated and concluded over the counter, and with the value of your pawned item.
This can be jewellery or other valuables. However, just like payday loans, these pawnshop loans come with very high interest rates, from 5% to a staggering 25%, not including additional charges at the discretion of the lender. Defaulting in payment is tantamount to forfeiting the collateral item, which will likely be sold off to compensate for the loan taken. Like payday lenders, this type of lenders should be considered only when other options are practically non-viable.
Credit Card Companies
Credit card companies are another tested and trusted category of lenders in the money market. Since the borrower is already in possession of the credit card, the loan application process is skipped. Loan limits exist for each credit card owner, and they can increase if timely repayments are made. Basically, you can sort out small expenses using your credit card and your finance company will pay for it. This service does not come without the obvious price – high-interest rates and some begin to accrue the moment the withdrawal is made. Additional fees per withdrawal may also apply.
Family and Friends
This is a very preferred option as the lender and borrower share an intimate relationship. Consequently, loans given may come at little or zero interest rates, and very flexible repayment options. Family and friends know you well enough to trust you with their money, and you know them well enough to not disappoint them.
Unfortunately, disappointments happen and they cause a huge strain on the relationship between lender and borrower. Apart from the awkward moments that ensue when you run into them, many of such broken bridges caused by bad debts are often hard to rebuild. Finally, since your family member or friend is not a registered financial entity, there is no impact of your transactions with them on your credit score. This doubles as an advantage, and a disadvantage.
401 (k)
Rather than take a loan from a second party, what better lender to choose than yourself? Yes, you read that right. 401(K) retirement loan is taken from your saved-up retirement money at your place of employment, with a strictly supervised repayment schedule. In many cases, you can only take out fifty per cent of the money you have saved up and must be repaid within five years.
This loan comes with interest that does not go to the employer, but back to your retirement savings. Delay in repayment will exempt you from investment returns, and you will be ineligible to take any more loans from the account. Outright default will attract tax penalties, and an increase in the interest to be repaid. These measures are in place for discipline. In conclusion, you are expected to do extensive research on all loan options before coming to a decision. Whether for short or long-term loans, these factors are worth considering when choosing a lender:
- Loan Purpose: This will guide you in deciding the exact amount you need and the lender to approach for your loan.
- Interest Rates and Additional costs: After approaching your chosen lender and applying for a loan, take some time to review the rates and fees involved. Some loans are more expensive than others. Prior knowledge of these costs will prevent making the wrong choice of loan type and lender.
- Repayment Schedule: Depending on your monthly income, come to an agreement with your lender on a flexible repayment schedule that will not adversely affect other expenses.
- Default Penalties: Despite the strict regulations in place to prevent extortion by certain lenders, many borrowers still fall victim to extreme default penalties. Keep yourself informed of your rights as a borrower to guard against extortion, and report any extreme activities of lenders to the appropriate authorities. Within the confines of the law, certain default penalties are too difficult to bear. Ensure you are well aware of what goes on if you default in loan repayment before borrowing.
- The reputation of Creditor: Related to the aforementioned points, lenders can be dubious, and others exploitative. Research the reputation of your lender before transacting with them.
Conclusion on Best ways to borrow Money
In conclusion, whether for education or a new home, or a nice new car, or any need at all, it cannot be overemphasized that you weigh the pros and cons of each option available to you, to make an informed decision. There can be other best ways to borrow money. But the ways I have shared are better and easy ways to borrow money.
