Personal loans are a financing solution that can be used for any purpose. But, the repayment structure, interest, and other terms cannot be favorable to every borrower. In these kinds of situations, the borrower might consider alternatives to using personal loans. Thankfully, there are different options out there that could suit your personal finances better.
Why Use an Alternative?
Sometimes, personal loans are not always the most ideal form of financing. If you have poor credit, it may be challenging to qualify for a personal loan, especially if it is unsecured. Even if you qualify, the alternative personal loan rates and terms may not be favorable. Lastly, alternative savings personal loans usually come with a borrowing minimum which might be more than you need.
Alternative lenders for a personal loan may give you loan structures that may not be favorable for your purposes. Personal loans have payment structure as a fixed schedule. If you can not make steady payments, a flexible form of financing might be a better option. There could also be other fees included in the payments like origination fees and prepayment penalty fees.
Alternatives to a Personal Loan
If a personal loan does not fit with your financial goals and situation, there are alternatives available to you. Here are your options below and what makes them different financial products.
Balance Transfer
If your credit is in good standing, you might be able to borrow at a lower rate by taking advantage of balance transfers. In order to do so, you will be required to make the purchase on a credit card or use a convenience cheque. Then, you can rollover the debt by using a balance transfer to take advantage of the beneficial offer. Balance transfers are perfect if you can repay the amount on time, if you cannot, you might end up paying high interest.
Benefits: 0% interest for a specific period (usually 6 months) with flexible repayment.
disadvantage: Higher interest rates and penalties if you do not make payment in time, hidden fees, need to have an existing credit card.
Home Equity Loans
It is is a type of loan that uses your equity you have built up by paying off your mortgage as collateral. Home equity loans can be similar to personal loans in many ways, the main difference is for personal loans do not require collateral. Home equity loans are an installment loan that requires regular payments.
Benefits: Loan offers come with lower interest rates, they can be used for any purpose.
Disadvantages: Failure to pay, you may lose your house.
Peer-to-Peer Loans
Instead of borrowing from traditional institutions, you may also borrow from other individuals through peer-to-peer lending markets. This is structured similarly to personal loans but can be a great alternative for individuals who don’t qualify for traditional financing.
Benefits: Quick turnaround times, low credit scores are okay to borrow, flexible payment terms sometimes an option.
Cons: Cannot guarantee to get funded, origination fees are sometimes charged.
Credit Cards
When you charge an amount to the credit card it becomes due at a future date, usually within a month. Credit cards offer flexibility for those who need access to a quick form of financing. The main benefits are that you do not need to repay your credit card balance in full, you can simply make the minimum payment. Although, in case you do not pay the balance in full when it’s due, you will incur additional costs. It is best if you pay your balance in full to avoid fees and to preserve your credit.
Pros: Widely accepted, flexible repayment, low credit limits, for some credit cards you may get additional perks
Cons: Possibility of getting much debt, high-interest rates, penalties for late payments.
Line of Credit
If you are unsure of the final cost of your expense, a line of credit can be a solution. Lines of credit have a maximum loan amount you can borrow, but you don’t have to borrow the entire limit, only what you need. Once you take out money, you may only need to pay interest on the outstanding balance until it’s fully paid off. You can use it over and over again. Plus, the payment schedule is extremely flexible.
Pros: The loan amount you may borrow is flexible, you can be reused in the future, helpful for individuals with irregular income and expenses.
Cons: Fees are applicable, difficult to qualify if you have low income or short credit history.
How To Choose The Best Financing Option For Me?
Before you choosing financing options, it is best to consider your financial goals and current situation. Information can answer a lot of questions regarding what financing will work and what won’t. Consider the below factors to help determine which option is the best:
Cost and Affordability
Lenders reputation
Loan purpose
Comparison of Financial offers
Processing time
Find What Works Best For You
Everyone has different financial needs and goals, the idea is to find what is best for your circumstances. Personal loans might be the best solution, another financing option might be more optima when paying off your loan. If undecided about which option is right for you, Mortgage lender Canada helps you research and weigh your options and find the right product or lender.
