Needing a loan at some point in your life is nothing new. It could be to buy a home, for education, personal use, and medical emergencies. Figuring out where and how to borrow money can be overwhelming as there are so many options to choose from. Understanding the ins and outs of each option is necessary as every person’s situation is unique and different.
There are multiple routes you can take when looking to borrow money. The most common options are banks, credit unions, financing companies, peer-to-peer lending, 401(k) plans, online lenders, or family and friends.
We have listed the four most popular options and discussed their pros and cons to help you understand which route is best for you and suits your needs.
Line of Credit
A line of credit is a loan secured by putting down a home as collateral, and the amount is decided based on the equity of the home. This is to combat a situation where repayments are not possible, the bank can use your home to make up for the remainder of the loan.
Pros:
- This loan can be used for multiple purposes, such as home improvement or paying off other debts.
- Variable interest rates.
- You can pay back this loan through monthly installments, making it easier to budget.
- The flexibility to choose how much you want to borrow. This comes in handy in case you want to borrow extra money for an emergency.
Cons:
- This loan is revokable if you fail to make payments or if the value of your home decreases.
- Risk losing your home to the bank if you fail to make payments.
- You need a high credit score.
Banks
This is usually the first option that comes to mind for most borrowers. The bank is known to offer all kinds of loans to people – that’s how they function. Whether it is a personal loan, mortgage, car loan, or student loan, banks try to offer a rate that benefits them. This is how they make a profit, but it might not always be beneficial to the borrower.
At times, the borrower is left heavily indebted and stuck in the vicious cycle of paying high-interest rates.
Pros:
- You can receive a good rate if you are a long-term member.
- Financial consultation and flexible payment options.
- Multiple types of loans are available.
Cons:
- You must have a high credit score to be approved.
- Interest rates are usually high, especially if your credit score is not the best.
- You must have an account with them.
- The flexibility of a personal loan can cause irresponsible borrowing, leaving a person in debt.
Credit Cards
Credit cards are one of the most popular options when it comes to short-term loans. You can use them to purchase a product or service now and pay later. Based on your credit history and income-related factors, the bank will decide how much your credit card limit will be.
Each credit card comes with terms and conditions along with perks. Using a credit card wisely is important, or else you can find yourself in debt, trying to pay it off for years. It also affects your credit score and the approval rate for other applications, such as while purchasing a car, a home, or applying for an external loan.
Pros:
- Easy access to money since you only have to apply once to get a credit card.
- Interest is charged on the credit used and not the entire limit.
- You can avoid interest rates if you find a 0% APR credit card option.
Cons:
- The interest rate on your credit card is not always the same as withdrawing cash. Usually, the rates are higher for cash advances.
- If you cross the permitted limit on your card, you could get charged exceptionally high-interest rates.
- Credit cards can usually get you small loans, which is not ideal if you need more money.
- Mounting credit card debt can negatively affect your credit score.
Peer-to-Peer Lending
The fourth option is peer-to-peer lending, which works well for those who want money quickly and easily. A platform like Lendee pairs you with a network of investors who’ll be willing to lend you money without the need of a middle man.
What are the benefits of borrowing on Lendee?
- Lendee gets you the money you need in just a few clicks.
- You can get a loan no matter what your credit score is.
- You can share the reason for your loan for lenders to consider your unique situation.
- Access a network of lenders and borrow money at a competitive rate.
- Flexible payback options are available.
- Pay an interest rate that works for you.
Lendee is one of the best platforms to borrow money for those who don’t want to go through the hassles of getting money from traditional financial institutions. Each lender has its pros and cons but peer-to-peer lending is the option that offers you the most benefits.
If you need a loan for personal use or business, Lendee is a terrific option that allows you to avoid high-interest rates while paying back flexibly.