Introduction

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 safer and less expensive options, such as personal loans or credit cards with a 0% intro APR.

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.

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.

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 balance 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.

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, O1ne Mortgage is here to help. Our team of experts can guide you through the process and find the best loan options tailored to your needs. Call us today at 213-732-3074 for any mortgage service needs. We are committed to providing you with the best service and helping you achieve your financial goals.