If you’ve found yourself in a financial crunch and need to borrow money, there are plenty of options available. These include traditional banks, credit unions, online lenders and more.
What loan option is right for you depends on a number of factors, including your needs, creditworthiness and more. Before making any decisions, be sure to thoroughly research all possible borrowing options.
Traditional banks
If you need money, there are a variety of financial solutions. Traditional banks, alternative online lenders and credit unions all provide different levels of assistance depending on your qualifications. A traditional bank loan may have lower interest rates, higher borrowing limits or better terms than an alternative lender depending on what suits your needs best.
Traditional banks are a type of financial institution that operates as an actual physical location with branches throughout the nation. They also provide face-to-face customer service, something many consumers still value today.
However, some traditional banks have become increasingly digital. The banking industry has rapidly adopted technologies like mobile internet networks, cloud computing, artificial intelligence and Big Data in an effort to remain competitive. These digital banks typically have a wider reach and offer more financial products than their analog counterparts.
Traditional banks still exist, but they have been overtaken by more digital-focused competitors. Some even operate as branchless banks – known as direct banks – which provide all the functionality of traditional banks without physical locations.
Traditional banks remain the go-to for many customers, yet these institutions are losing market share due to outdated infrastructure. Most traditional banks rely on systems that have been in place for decades, lacking the capacity to handle high data traffic or integrate new technologies.
The banking industry is evolving quickly, as consumer demands shift towards faster and simpler processes. That’s where fintechs come into play – providing these essential solutions at a lower cost.
Fintechs are forward-thinking, customer-oriented businesses that utilize technology to offer an improved banking experience. While some may view them as direct competitors of banks, they also maintain a close partnership with them because their innovations can enhance existing activities.
Credit unions
If you need a way to borrow money, credit unions are an ideal choice. These institutions tend to be community-based and offer financial products that are more tailored than what traditional banks provide.
A credit union is a cooperative, meaning its ownership and operations are for its members’ benefit. This differs from for-profit banks which reinvest profits back into their shareholders rather than serving customers.
Becoming a member of a credit union requires meeting certain eligibility requirements. These include living in an eligible area, working for an eligible employer or belonging to certain nonprofit groups such as schools, labor unions and homeowners associations.
However, many credit unions will allow you to join without meeting these qualifications. You can find a list of credit unions in your area by using the National Credit Union Locator.
Before applying for a loan from your credit union, it’s wise to consult with someone there about their membership requirements. Doing this ahead of time will save both time and stress in the future.
When applying for a loan, your credit union will take into account your income, debts and other factors. They use your credit score to decide the terms of the deal as well as the interest rate.
Credit unions typically charge lower interest rates and fees on personal loans than payday lenders do, plus they provide flexible repayment options with often higher maximum loan amounts.
Credit unions, being non-profit organizations, can pass along their savings to their members at lower costs than banks do. Furthermore, credit unions boast more responsive customer service so you can be certain your questions will be answered promptly and thoroughly.
Online lenders
If you need money for an unexpected expense or want to take advantage of an exciting opportunity, an online loan can provide fast cash. But before applying, make sure the lender is legitimate and safe.
Online lenders provide fast access to funds, often at competitive rates. However, be aware of hidden fees which could add up quickly.
Comparing loan offers from multiple lenders is a great place to start when looking to save money on interest.
Some websites that compare loans also allow borrowers to prequalify for multiple loan offers with one application, helping them avoid hard credit inquiries which could negatively affect their credit score.
Other online lenders may take into account factors other than credit scores when making approval decisions, such as education or occupation. They may also request to check a borrower’s bank account transactions to assess how well they have managed their finances.
Another reason to shop around is that some traditional banks and credit unions may offer lower rates than online lenders. Savings can be even greater if a borrower already has an established relationship with the bank or credit union and can lock in a lower rate when opening an account there.
It’s worth noting that some traditional banks may offer more loan products than their online competitors, so it pays off to shop around before making a decision. Furthermore, banks and credit unions typically have customer service representatives available who can answer your questions about loans, bank accounts and other financial services.
Credit card cash advances
Credit card cash advances are an easy and popular way to borrow money from your credit line. You can get them online, by calling the card issuer, or at ATMs.
Cash advances can be a good solution for short-term emergencies, but they come with high fees and interest rates. Furthermore, they add to your credit card debt and negatively affect your credit score.
When using your credit card for a cash advance, the card issuer charges interest on the entire amount withdrawn. This differs from when making purchases or applying for a balance transfer, where there’s typically a grace period before interest begins to accrue.
Credit card cash advances typically have limits, usually determined by your card’s credit limit. This is beneficial, as it prevents you from taking out large sums of money and then having to repay more than what was borrowed in the first place.
Cash advances come with interest that starts to accrue as soon as the money is taken out, so it’s essential to pay off your cash advance in full within the agreed upon period of time. You can do this by making a larger minimum payment each month or working to clear your balance before the next statement cycle arrives.
Credit card cash advances can be costly, particularly if you don’t have an emergency fund or other way to quickly pay off debts. That is why it is recommended to avoid them unless absolutely necessary.
You can avoid credit card cash advances by using other options, such as a checking or emergency savings account. Unfortunately, these solutions tend to be more complex to manage and require more preparation than a simple cash advance.
Credit score
Your credit score can make or break the type of loan you qualify for and if you can get a better interest rate. A good score could ultimately save you money in the long run.
Your score is determined by information the credit bureaus – Equifax, TransUnion and Experian – collect about you from creditors like mortgage or student loan lenders, credit card companies, landlords and utilities. This data includes payment history and amount owed on credit accounts; length of tenure with them; frequency of application for new credits; debt-to-income ratio.
A high credit score indicates that lenders will be willing to loan you a substantial sum of money at an acceptable interest rate. On the contrary, a lower score presents lenders with greater risk.
Credit scores range from 300 to 850, with 670 being considered a fair credit score. A score below the average is considered low credit, and one above it is known as exceptional.
You can improve your credit score by being responsible with credit and paying off debt on time. This may involve decreasing the balances on existing cards or opening new ones that only cover small purchases.
Having multiple credit accounts can be beneficial to your score, however applying for too many new ones within a short time may negatively affect it.
A variety of accounts, both revolving and installment credit, is beneficial when it comes to increasing your credit score. Credit scoring models often take into account longer credit histories as being less risky; having many open accounts with an established history of timely payments on time will usually improve your score accordingly.
