The following is a guest post.
There are times when we all need to look at loan financing, whether for a specific event such as a wedding or as a means of consolidating our debts. Most of us will initially think of going to our banks and applying for a loan, but what are the alternatives to this form of lending? Maybe your application has been rejected by your bank, or you simply want to know about other alternatives that are available. Whichever way you choose to go, there is always more than one option.
Here are some of the alternatives you can look into depending upon your financial needs.
Peer to Peer Lending
Peer to Peer lending is simply borrowing money from REAL people, not a bank or another type of organization. There are many companies now offering this form of lending and the rules are pretty simple; lenders join and offer their own money for which they will set their own interest rates. You will join and apply for a loan, and be sent offers with varying rates of interest. This is a win-win situation for all: the lenders will collect the interest on their investment and you will get the funds you need, often at a lower rate than the banks provide.
Credit Unions offer extremely flexible lending to their members, often for longer pay back periods than banks will give. Credit Unions are run by a group of people who save money within the union. If someone needs to borrow from them, the money is available. This is a highly regarded form of lending amongst students and young people, as credit unions normally offer lower interest rates than banks with some loans offered on a signature only basis. Signature loans are unsecured loans that are guaranteed only by your signature – be aware tough that the interest rates for these are higher than average.
Short term Loans
As with all forms of lending, the amount you are offered, or even if you are offered one at all, will ultimately come down to your credit score. So getting a loan with a bad or low credit score can seem like an impossible feat. There is an answer to this though, and this is short term loans. These loans are designed specifically for times of financial emergency and are not long term lending solutions. There are many forms of short term loans available, with the most common being Pay Day loans. The general consensus here is that you will borrow the money for a very limited time frame, 2-4 weeks in general, and then pay back the full amount and interest once you have your next pay check.
Before signing for a short term loan, be sure that you know the interest rates so that you can work out what the total repayable amount is.
This form of loan is very popular with those of us who have stocks and shares. You will essentially be gaining a loan from the stocks you own, so if your stocks are stable then you can borrow up to half of the total amount that you own. The interest rates on a long term margin loan are very competitive and this will continue to be easily managed as long as your stocks are doing well. Be advised that as soon as they drop you will face larger repayments and you may even have to pay back the full amount straight away. A viable option only if your shares and stocks are almost consistently stable.
401K Loans are borrowing against your retirement plan and are a very common alternative to remortgaging your homes and for when you need large loans. Every employer is different and some offer only restricted lending or even no lending at all. But if you are able to take out a 401K then you can on average borrow up to half of your balance.
The best part about this form of lending is that all the interest you pay is effectively going straight back to you, so it is a lot more efficient for you in the long run. Like with Margin Loans, there is the issue that is you are laid off or you leave your job you will be responsible for paying back the loan in full, usually within 60 days.
Whichever form of lending you choose to use, the main thing to always remember is why you need the loan and to do your homework to find the option that will work best for you.
Ellen’s comments – great post – I learned a few things from it!