What will you most likely do if you needed some little help covering an unexpected expense? You will most likely take a trip to your local bank and ask for a loan. If you have a good credit score and positive financial history with the bank, your loan request will most likely be approved.
But if your credit score isn’t good enough, your loan request will most likely be rejected. So, what do you do in such a case? Does it mean it is the end of the road for you? Do you have any other alternatives where you can borrow the funds you need to address your situation?
The simple answer is “yes.” There are plenty of lending options out there other than bank loans that you can exploit. In this post, we discuss the top five lending alternatives to banks.
1. Peer-to-Peer Lending
Peer-to-peer lending, also known as social lending, refers to taking out credit from a provider who, in turn, will source for the funds from different people across the world. There are many online peer-to-peer lending platforms that connect lenders to borrowers.
In peer-to-peer lending, the online lenders put their money into a single online pot, which the platform moderators use to lend out approved loan applicants. This is a streamlined and highly coordinated version of what traditional banks usually do, but the deals are much better.
2. Family and Friends
If your bank has rejected your loan application, you can turn to your family or trusted friends for help. However, you need to have a legal agreement in place, stating clearly the loan terms. Ensure the agreement states the amount of money you are borrowing, the expected repayment date, and whether you will pay back the money with interest.
One of the biggest advantages of borrowing from a family member or friend is that they will not be too stringent like commercial lenders. Most of them will not charge interest on the principal amount making it moiré affordable.
However, you should keep in mind that defaulting on loans borrowed from family or friends can have a devastating impact on your relationship. Therefore, it is critical to honor the agreement and pay back the money on time.
3. Payday Loan
When you need urgent financial help to cover unexpected bills, a payday loan from an online money lender might be the best solution for you. Payday loans are short-term loans that are more convenient than traditional bank loans.
The application process is simple, and most lenders offer instant approval. They also offer fast access to borrowed funds. Typically, online payday loans are processed within 24hours.
The only downside of these loans is that the interest rate is slightly higher to account for the risk of lending money to consumers with bad credit scores.
4. Credit Union Loans
Credit unions operate much like banks, but they are usually set up by a group of individuals with a common interest. For instance, there are credit unions set up by nurses, teachers, bankers, etc. Credit union members can borrow money from the union at lower interest rates.
They also offer loans to non-members at lower interest rates than traditional banks. Credit union loans are processed much faster and usually have flexible repayment terms.
5. Personal Lines of Credit
With a personal loan, you are approved for a specific amount of money. Interest on the principal amount starts to accrue as soon as the money is deposited into your bank account.
Furthermore, the only way you can get more out of a personal loan is to take another loan. In such a case, the lender will require you to pay off the first loan before applying for another one.
However, a personal line of credit is slightly different because you only need to apply once for your credit limit. From there, you can use as much or as little of your available credit as you want. Interest is only charged on the amount you use.
Once you start utilizing your available credit, you will receive a statement indicating how much you owe the lender, just like a credit card.