Personal loans provide fast, unsecured money that can pay off anything from home repairs to medical emergencies. Instead of asking for collateral like a house or a car, many prefer advanced lenders with strong credit and high incomes.
But what if you do not meet the requirements of the lender? People who do not qualify for a personal loan have alternatives to greedy, high interest lenders. These options can help cover the income gap, but they each have their own pros and cons.
1. Try No Borrowing Options
See if you can get paid by making room in your budget and pulling some extra cash, says Tanya Brown, Atlanta-area certified financial planner and financial coach. Review your budget for any expenses you can cut, even temporarily, such as dinner 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, Brown says, a couple’s reduced expenses with extra income from a side business like booking flights or selling things you no longer need.
2. Borrowing from a family member
If you are comfortable asking for money from a family member, this may be one of the cheapest borrowing options. It does not include a credit check or credit reports, but may take additional planning.
Bring a “game plan” that includes the loan amount, interest rate, and repayment term when you bring up the topic to take the guesswork out of the decision, Brown says. For a small loan, an informal loan document between you and the lender may suffice. Larger loans may require a formal agreement.
Ideally, the attorney will draft a formal loan document that both of you will sign, says Philip Mock, CFP based in Tulsa, Oklahoma. You may have to pay a fee for attorney time.
Mock says family loans can have tax implications, so do your research as well when drafting the loan agreement. For larger loans or more complex questions, consult a tax professional.
3. Split a large purchase
A “buy now, pay later” payment plan can ease the stress of a large purchase by breaking it down into multiple smaller payments. BNPL plans are available at most major retailers and can ease the financial blow to a new bed or computer, for example.
BNPL is an easy and quick option because there is no difficult credit check or lengthy application process, says Christian Brennon, a certified financial advisor based in Kansas City, Missouri.
Since BNPL providers automatically withdraw installment payments directly from your account, they recommend setting reminders for the payment due date and making sure your account is not withdrawn.
4. Get a cash advance
Cash advance apps like Earnin and Dave provide a quick stream of a few hundred dollars with no credit check and lower fees than payday loans. But like payday lenders, these apps require access to the user’s bank account in order to withdraw the payment on the next payday.
While convenient, the apps should be used in moderation because they can be challenging in terms of budget, says Brown. The amount you borrow today will leave a gap of this size in your next paycheck, so she recommends anticipating this gap before you borrow.
“Make sure you get exactly the amount you need and that you draw up a plan for how you will pay that amount,” she says.
Building savings over time
Savings is an interest-free way to pay for emergency and discretionary expenses. Mock recommends saving the equivalent of three to six months of expenses, but even a few hundred dollars savings It will help cover most unexpected expenses.
If you need help building your savings each month, Brennon recommends finding professional help through the Association for Financial Counseling and Planning Education. They offer free counseling services to the public until about mid-December.
Make a list of your upcoming expenses—like Halloween costumes and holiday gifts—and budget in advance, says Brown. This way, your savings can be reserved for unexpected expenses or income gaps.
“Life will always have ups and downs, and the key is learning how to manage,” she says. “It helps turn what could have been a crisis into an annoying inconvenience.”
Written by Annie Millerbrand from NerdWallet
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