When a large or unexpected expense arrives and you need to borrow money to cover it, there are plenty of options out there—but some are better than others. Be wary of easily accessible but expensive and risky options, such as payday loans and auto title loans. Instead, consider a safer and less expensive option, such a personal loan or a credit card with a 0% intro APR.
Here are some good options to consider when you need money quickly.
1. Personal Loan
Personal loans are a relatively safe, tried-and-true way to borrow money for a variety of purposes. They provide a lump sum upfront, which you then repay with interest in monthly installments. Interest rates are typically fixed, making the monthly payments consistent and easier to budget around. Common uses include consolidating high-interest debt or paying for a wedding, adoption, medical expense or home renovation.
For a time, traditional banks and credit unions cut back on offering personal loans, which led to a surge in online lenders that offered more flexible borrowing criteria. In the past year or two, however, more traditional banks have begun to offer small personal loans to those with little to no credit history.
Borrowers with excellent credit scores have the widest access to loans, usually with the lowest interest rates and fees. But personal loans are available even if your credit needs improvement.
Pros:
- Predictable monthly installment payments simplify budgeting.
- Repayment terms from a few months to several years provide time to pay it off.
- Interest rates are typically lower than credit cards.
- Non-traditional online lenders may offer less stringent borrowing criteria than banks or credit unions.
Cons:
- It may be more challenging to find loans for smaller amounts (such as under $1,000).
- Some lenders may charge steep origination fees of up to 8% depending on your credit profile.
- You need good to excellent credit to qualify for the best interest rates and terms.
2. Intro 0% APR Credit Card
Credit cards can be an expensive way to borrow money because they can come with steep interest rates and fees. There is an exception, however, when it comes to intro 0% APR cards.
These are credit cards that incentivize new cardholders by charging no interest for a limited time after opening the account. The intro 0% APR might be for purchases only, balance transfers only or both, so make sure to look for a card that meets your needs. You can use the card to make a large purchase or pay for an expensive repair, and if you pay it off before the intro period ends, you won't pay any interest.
The intro periods for purchases can be quite generous, usually ranging anywhere from 12 to 21 months. You'll know what the term is when you open the account, so you can plan your budget accordingly. However, you'll need good to excellent credit to qualify.
Pros:
- You can borrow money without paying interest as long as you pay off your balance (and follow the card's other requirements) before the standard rate kicks in.
- Intro periods can offer a long period of time, often over a year, to repay your debt without interest.
- You won't pay any origination fees as you might with other types of loans.
- You get more flexibility with payment terms and amounts than with loans.
Cons:
- Some cards only offer no interest on purchases or balances transfers, not both.
- You can lose your intro 0% APR if you fail to meet the card's requirements (for example, by making a late payment).
- Standard interest rates can be high, so you could owe hefty interest payments if you can't pay off your balance before the intro period ends.
- You may not be able to get a credit limit high enough to cover a large purchase.
- The introductory period may not be long enough to pay off your expense.
3. Personal Line of Credit
A personal line of credit (LOC) is a form of revolving credit, similar to a credit card, though they're less common. Both allow you to borrow from a credit line over and over again as you repay your balance. You can access the money from a LOC through a debit card, checkbook or, in some cases, electronic transfer.
Interest rates on LOCs are variable, though they tend to be much lower than with credit cards. Another key difference: Credit cards can be used indefinitely as long as they remain in good standing. A LOC, on the other hand, has a draw period during which you can borrow and repay money, and a separate repayment period where you can no longer borrow and must finish repaying your balance. Each phase is typically several years.
A home equity line of credit (HELOC) is a secured LOC in which you borrow against your home equity. HELOCs can take longer to process, so may not fit your needs if you need cash urgently. A personal LOC, on the other hand, is usually unsecured and may be available more quickly. Depending on your lender, you may be able to secure a LOC with an asset or bank account for a lower interest rate.
Pros
- Only draw and pay interest on what you need.
- It's more flexible than a loan since you can borrow again as you repay. This is ideal if you're unsure exactly how much money you'll need (say, for a home improvement project that might come with additional costs).
Cons
- While they work similarly to credit cards, they don't come with the perks and rewards.
- With distinct draw and repayment periods, you only have a limited time to use the credit line.
- Interest rates are usually variable, which can create budgeting uncertainty.
4. Loan From Family or Friends
Borrowing money from friends and family can be messy and even ruin relationships, so it isn't a good idea for everyone. But if you need to borrow a small amount urgently, say for a car repair or vet bill—or your credit is in really bad shape—going to a trusted loved one could be a good option.
Just make sure to communicate openly with your loved one and formalize your agreement in writing so there is no confusion. While it may feel uncomfortable to make things so official with a relative or close friend, it will protect both of you.
You'll need to create a loan contract, often called a promissory note, and both sign it (you can find templates online). This document should outline the amount you're borrowing, the repayment plan and if there will be any collateral or interest required. Treat your repayment schedule like you would with any traditional lender to preserve your relationship and proactively address any issues that arise.
Pros
- You don't need to fill out an application or provide documentation.
- There's no credit check; instead, you'll count on your loved one's willingness and ability to help for approval.
- It can be much faster than applying for a formal loan, line of credit or credit card.
- There are no fees or possible credit fallout.
Cons
- It can create tension or rifts in relationships if not handled well by one or both parties.
- It doesn't allow you to build credit.
- It's not an ideal option for large amounts of money, both because it can be harder to find someone who can afford it and because it can place greater stress on the relationship.
The Bottom Line
There are many options out there when you need to borrow money, but it's crucial to do your research and be aware of potential downsides. For example, you can borrow from your retirement accounts, but you'll likely face a penalty fee and lose out on investment gains. And if a payday loan seems like your only option due to your credit or other factors, research less risky and cheaper payday loan alternatives first.
If a personal loan seems like your best option, Experian's free comparison tool provides custom personal loan offers based on your credit profile. Even if your credit isn't in perfect shape, you may still be able to find a lender willing to work with you.