When you’re in need of some extra cash for an expense, a personal loan is often the first thing that comes to mind.
Unfortunately, not everyone has the time or great credit to get approved for such a loan, which might leave many hanging and stressing about falling into debt. But that’s when you can seek out personal loan alternatives to fill the void and provide you with everything you need.
So, if you want to explore your options, keep reading to find out more!
Top Alternatives to a Personal Loan
If you’ve determined you don’t meet the terms required for a personal loan, you can start looking at alternatives to a loan. Sometimes, this might even turn out to be the better option and can kickstart your journey toward financial stability.
However, it’s essential to remember that not all personal loan options are suitable for everyone, which is why you must do adequate research beforehand to avoid biting off more than you can chew.
And if you think you’d still be better off with the real deal, check out the best personal loans in Canada!
First, let’s talk about balance transfers. As you might already know, a balance transfer is when you transfer the debt from one credit card to another. By doing so, you can take advantage of a lower interest rate, which will ultimately save you more money in the long run and eliminate your debt faster.
So why is this one of the best personal loan alternatives? Primarily because it aids you in saving on interest, consolidating payments, and erasing debt.
However, before doing a balance transfer and committing, ensure you do extensive research, as some cards might have a balance transfer fee, which you might like to avoid.
- Saves money on interest charges
- Can come with a 0% introductory APR
- Might not save as much money to be worth the trouble
Home Equity Loans
A home equity loan and line of credit (HELOC) is when a borrower borrows money against the value of their home and the equity built in it. Essentially, it’s a second mortgage that will give you a lump sum amount of money to repay on a schedule.
If you opt for this kind of loan, it can give you some extra cash to work with because you’ll be able to score a lower APR due to the security of your home. Additionally, some buyers decide to borrow funds from their HELOC to put toward the downpayment on a house.
Nonetheless, these personal loan options don’t come without drawbacks. In fact, since you’re using your house as collateral, you could risk losing it if you fall behind on your repayment.
- Offers lower interest rates than personal loans
- High borrowing limits
- Your home is collateral
A peer-to-peer loan (P2P) is when you borrow from individual investors and not a bank or credit union. Therefore, since you’re not working with a direct lender, you may have more flexibility regarding payment terms or credit scores, which makes these loans an excellent alternative to personal loans.
And although P2P loans fall under the umbrella of “personal loans,” investors might be more willing to overlook any issues in your credit history.
However, we have to mention that this type of loan might come with longer processing times and a higher origination fee.
- You can qualify even with a lower credit score
- You may be able to delay payment without a fee
- Origination fees can be up to 8% of the loan amount
Surprisingly enough, you can also use your credit card as one of the best alternatives to a loan. So, if you already have a card with a low interest rate, you can use it to your advantage and take out a cash advance, which will get you the money you need without you having to apply for a personal loan.
Additionally, since credit cards offer a revolving line of credit, you can use your card as much as you want, as long as you stay under the predetermined limit. Even if your credit score isn’t stellar, you can get a secured credit card and use it to build your score over time. Or you can check out the best loans in Canada with no credit check!
And if you have good credit, you might even benefit from introductory periods with 0% APR, where you can pay off your balance in full before the period is over and not be charged any interest.
- 0% introductory APR
- Extended warranties and additional protections
- You may fall into debt if you borrow frequently
Line of Credit
A line of credit is similar to a credit card in the sense that you’re essentially borrowing money against an existing credit limit. So, you can tap your credit line as often as you need to and you don’t have to follow a schedule for your debt, as long as you pay back the amount.
What makes lines of credit good personal loan options is that they often come with lower interest rates than credit cards or other means of funding.
In terms of qualifying, you’ll usually need to meet the same requirements as a personal loan. However, keep in mind that some lenders might charge you an annual or monthly fee if you maintain your line of credit.
- Easily-accessible funds
- Monthly or annual fees for keeping the line open
How to Choose the Right Financing Option?
Of course, you shouldn’t just pick one of the first alternatives to a loan you can find. Instead, you should do thorough research and ask many questions to ensure you know exactly what you’re signing on to.
Here’s what you need to consider:
- Interest rates determine how much you end up paying back in the long run, so you should attempt to find a loan with a lower interest rate so as not to rack up the bill further down the line.
- Collateral, or what you put up to secure the loan, acts as a safety net for the lender in case you can’t repay the money or don’t stick to the terms of your agreement, so ensure you don’t put too much on the line.
- Processing times can affect the effectiveness of your loan, especially if you’re looking for quick funds, so be sure to ask about deadlines before you commit to an agreement with a leisurely lender.
- Repayment terms, or how long and how much you need to repay the loan, can make or break an agreement, which means you must ensure you can handle the monthly payments and remember the due dates before you opt for an option.
Finally, it’s essential for us to mention that what works for one borrower, might not work for another. So, if you’re easily influenced and shy away from doing the research yourself, talk to a reputable and licensed financial advisor to guide you toward the best decision.
Evidently, there are a number of personal loan alternatives out there ready to meet your needs. Therefore, you should explore all your options before making a decision and venturing into new seas.
Consider all the elements mentioned above, do your research, and ask for guidance to pick the best choice!
Admittedly, there is no one best alternative to a personal loan. Instead, there are several options you can consider, such as balance transfers, credit cards, peer-to-peer loans, home equity loans, and personal lines of credit.
Instead of a payday loan, you can opt for an installment loan, debt consolidation, or a line of credit.
Payday loans are usually the easiest and fastest loans to get approved for. Aside from them, you can look into car title loans, pawnshop loans, and personal installment loans.