Personal loans are a convenient way to get funding for just about anything, but it doesn’t mean they’re cheap. These loans can steamroll you into massive debt if you mishandle them. Most lenders nowadays offer you personal loans, but the interest rate can be expensive and lead to more debt.
If you’re looking for alternatives to personal loans, there are quite a few of them. They can offer you instant funding whenever you need it. Here are some personal loan alternatives that you might use:
Line of Credit
A line of credit is essentially a flexible loan that you can get from a traditional bank or lender. It offers similar services to credit cards but with a few key differences. First, it works by giving you a limited amount of funds, and you will accrue interest on it. The interest will be applied directly to the amount of money you borrow from your line of credit, which you will pay over a prespecified period.
Like a loan, you will immediately accrue interest the moment you borrow from your line of credit, which means there will be no grace period. Before you can borrow from your line of credit, you will have to get approved first. Also, the interest rate is highly variable, so there’s no saying how much you will pay for a specific amount you borrow.
Lines of credit are generally cheaper than credit card loans but tend to complicate a bank’s earnings. The outstanding balances are hard to predict once the line of credit is approved because of the varying interest rate, but they still offer them anyway.
It addresses the fact that banks tend to avoid underwriting one-time personal loans for the most part. Also, experts suggest that it’s not wise for a person to borrow loans every month or two, repay them, and then borrow again. That’s why lines of credit exist.
Home Equity Loans
A home equity loan, or as some people call it, a “second mortgage,” is a loan that you take from your home equity. This loan will be disbursed to you in a lump sum, which will be paid back monthly.
The loan is secured by your property, which means if you fail to pay back the loan, you risk losing the equity in your house. The loan can be used for almost anything, which is convenient. Also, the interest rate and the monthly payments are fixed, ensuring you a predictable payment schedule.
How does it work? The amount that an owner can take from their equity is based on a combined loan-to-value ratio of 80%-90% of the home’s appraised value in the current market. However, you need to note that the lender will still do a credit check before letting you take out the loan.
Just like mentioned earlier, you have a set repayment schedule, and if you fail to pay up your remaining debt, the house could be sold to fulfill the remaining balance you have on the loan.
Generally, a home equity loan is an excellent alternative to a personal loan. You can even increase the amount you can borrow by improving your home value in the market.
However, many consider it risky because you risk losing your home. Also, once you have taken out a loan and your home’s value decreases in the market, you end up with more debt than the worth of your home.
A payday loan is a short-term loan taken out from your next paycheck. Technically, it’s a cash advance, and some people even call it a salary advance. It’s a quick and easy way of obtaining cash but tends to snowball into an expensive debt if you fail to pay it back.
But can you borrow money online instantly? Yes. You can generally find a lot of them online, and once your loan is approved, you will get the cash on your card as fast as the next day.
Payday loans come with a financing charge, or technically the interest rate. It’s because the interest rate is fixed and is based on how much you borrow. However, note that they tend to have a high-interest rate because of their fast financing. Also, most lenders don’t typically require a credit check, making it more accessible for people who have bad credit.
Personal loans are one of the most convenient ways of financing but not necessarily the cheapest. Thankfully, there are several cheaper options out there in the market. However, these alternatives come with risks, so you might want to research before getting one.