Personal loans provide quick, unsecured funds that can pay for everything from home repairs to medical emergencies. Instead of requiring collateral like a house or car, many lenders prefer applicants with strong credit and high incomes.
But what if you don’t meet a lender’s requirements? People who don’t qualify for a personal loan have alternatives to high-interest predatory lenders. These options can help close an income gap, but each has advantages and disadvantages.
Try borrow-free options
See if you can find some cash by making room in your budget and pulling in some extra cash, says Tania Brown, a financial planner and certified financial coach in the Atlanta area. Review your budget for any expenses you can cut, even temporarily, like dining out or streaming services.
To save on existing bills, ask billing companies, creditors or doctors’ offices if they offer interest-free payment plans, she says.
Finally, pair reduced expenses with additional income from a side gig, such as booking a ride or selling things you no longer need, Brown says.
Borrow from family
If you’re comfortable asking a family member for money, this might be one of your least expensive borrowing options. This does not involve a credit check or credit report, but it may require additional planning.
bring a “Game plan” that includes a loan amount, interest rate, and repayment term when you broach the subject to take the guesswork out of the decision, Brown says. For a small loan, an informal loan document between you and the lender might suffice. Larger loans may require a formal agreement.
Ideally, an attorney will draft an official loan document that you both sign, says Philip Mock, a CFP based in Tulsa, Oklahoma. You may have to pay a fee for the lawyer’s time.
Family loans can have tax implications, Mock says, so do your research when writing the loan agreement. For larger loans or more complex questions, consult a tax specialist.
Split a large purchase
A “Buy now, pay later” payment plan can ease the stress of a large purchase by breaking it up into several smaller payments. BNPL plans are available at most major retailers and can lessen the financial blow of a new mattress or computer, for example.
BNPL is a quick and easy option because there’s no credit check or lengthy application process, says Kristian Brennon, a licensed financial advisor based in Kansas City, Missouri.
Since BNPL providers automatically take installment payments directly from your account, she recommends setting payment due date reminders and making sure your account won’t be overdrawn.
Get a cash advance
Cash advance apps like Earnin and Dave provide a quick influx of a few hundred dollars without a credit check and with lower fees than payday loans. But like payday lenders, these apps require access to a user’s bank account in order to withdraw the repayment on their next payday.
While convenient, apps should be used sparingly because they can be difficult to budget for, Brown says. The amount you borrow today will leave a hole that size in your next paycheck, so she recommends anticipating that gap before borrowing.
“Make sure you get exactly the amount you need and make a plan on how you’re going to pay that back,” she says.
Build savings over time
Savings are the interest-free way to pay for emergencies and discretionary expenses. Mock recommends saving three to six months of expenses, but having even a few hundred dollars in savings will help cover most unexpected expenses.
List your upcoming expenses — like Halloween costumes and holiday gifts — and budget for them in advance, Brown says. This way, your savings can be set aside for unexpected expenses or income discrepancies.
“Life is always going to have ups and downs, and the key is to learn how to manage”, she says. “It helps turn what would be a crisis into just an annoying inconvenience.”