Borrowers use personal loans for various purposes, such as making large purchases and handling emergencies. However, obtaining a personal loan can be challenging, given the many requirements lenders need you to satisfy before your application is approved.
If you do not qualify for a personal loan, you can explore other options. In this article, we will discuss five alternatives to a personal loan. Read on to learn more.
Credit Card
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All credit cards have spending limits. If you hit the limit, you will be required to make repayments to be able to use the card again. Many credit card issuers expect holders to pay off their balance monthly. However, if your financial situation does not allow you to do so, you can make repayments over time. Note that carrying your credit card balance to the following month attracts interest fees, which are imposed based on your credit score.
Credit cards are not just for making purchases. Instead, they also give access to cash advances to holders who need cash.
Advantages and Disadvantages of a Credit Card
Advantages
- As a new credit card holder, you might qualify for a zero annual percentage rate for a specific time.
- You may earn cashback rewards when using your card to pay for shopping.
Disadvantages
- Credit card issuers charge higher interest rates than personal loan lenders.
- If you are unable to pay off your credit card balance, you’re likely to get into bad debt.
Personal Line of Credit
A personal line of credit functions just like credit cards. The major difference is that a personal line of credit is linked to your bank. What’s more, you will pay lower interest rates than credit card holders.
Advantages and Disadvantages of Personal Line of Credit
Advantages
- It allows you to handle emergencies quickly since you do not have to apply for a loan.
- A personal line of credit lets you use your funds for more purposes than a personal loan.
Disadvantages
- You may be required to pay a maintenance fee for your line of credit to remain operational.
- People with bad credit are unlikely to qualify for a personal line of credit.
Peer-to-Peer Loan
Peer-to-peer loans are offered by a group of investors instead of a single lender. These investors usually operate an online lending platform. When you submit a loan request, they will decide the amount you qualify for and how much each will put to fund you.
Peer-to-peer loans are ideal for individuals with bad credit. However, expect to be charged a high interest rate.
Advantages and Disadvantages of a Peer-to-Peer Loan
Advantages
- Once your loan application is approved, funds will quickly be credited to your bank account.
- You can get funding regardless of your credit score.
Disadvantages
- You might not receive the exact amount that you applied for.
- The approval process is slow. It can take even weeks to complete.
Home Equity Loan
If you build up equity in your home, then you can obtain a loan using that equity. Home equity loans work like personal loans. That means if you wish to access funding again, you must submit a new application. While home equity loans attract lower interest rates than personal loans, they take several days to be approved and require loads of paperwork.
Advantages and Disadvantages of a Home Equity Loan
Advantages
- Funds obtained via home equity loans can be used for any purpose.
- Depending on your home equity, you might access more funds through home equity loans than personal loans.
Disadvantages
- Home equity loans take a long period to process.
- You could lose your home if you fail to repay your loan.
Salary Advance
Instead of waiting until the end of the month to receive your full salary, you can receive a percentage of it early by applying for a salary advance. However, not all employers grant access to this type of loan.
Advantages and Disadvantages of Salary Advances
Advantages
- Most employers do not charge interest on salary advances.
- You do not need good credit to access funding.
Disadvantages
- Most salary advance loans have limited uses.