At a Glance

If you are not already overwhelmed with debt, there are plenty of places to borrow money from—each with their own advantages and disadvantages. Once you’ve decided that seeking a loan is right for you, you’ll want to explore your borrowing options and choose one that works.

Ways to borrow money include:

  • Traditional bank or credit union loan
  • Personal loan from an online lender
  • Payday loan
  • Credit card cash advance
  • Your retirement plan
  • HELOC, home equity loan, or refinance
  • Pawn shop loan
  • Borrowing from family and friends

Personal loan from a bank, credit union, or online lender

Bank loan

A traditional bank loan allows you to borrow money and then pay it back plus interest in monthly installments. While some banks don’t offer personal loans to customers, others do but require good or excellent credit.


  • Customers can get loyalty discounts on interest rates
  • May offer no loan origination fee


  • Your bank may not offer them
  • Tough to get approved

Credit union loan

If you’re eligible, borrowing from a credit union could be a great alternative to a bank loan.


  • Lower interest rates
  • Fewer fees


  • Eligibility requirements (county of residence, place of work, relation to current member)

Personal loan from an online lender

When reputable, online lenders can provide personal loans quicker and easier than banks or credit unions.


  • Easy to apply
  • Fast option (often 1-2 business days if approved)


  • Interest rates may be higher than bank or credit union loans
  • Requires heavy research

Payday loan or cash advance

Payday loan

A short-term solution, this small loan must be repaid by your next payday. If you can’t pay on time, you can extend the due date but will also take on extra fees.


  • Fast option
  • Short-term


  • Can be expensive
  • Less time to pay back

Cash advance from your credit card

Another short-term option, you can take out a loan against your available line of credit on your credit card. This could be a good option if you don’t have the best credit score.


  • Fast option
  • No application
  • No credit check


  • Cash advance fee
  • High interest rate with no grace period (begins as soon as you withdraw)

401(k) loan

Borrow from your retirement account

If your employer-sponsored 401(k) plan does loans, you’ll have five years to pay back what you borrow. However, if you leave your employer, you may have to repay the loan in full before you file your next federal tax return.


  • No credit check
  • Interest you pay goes back into your 401(k)


  • Potential tax penalties if unpaid
  • Miss out on investment returns on money withdrawn

Borrow against your home equity


With a home equity line of credit (HELOC), homeowners can borrow money against the value of their home. The credit limit depends on your house’s market value and what you owe on your primary mortgage, along with other factors like your credit score.


  • Long-term repayment period
  • Flexible option for withdrawals and repayment


  • Additional fees (application, appraisal, attorney, transaction, etc.)
  • Variable interest rate, depend on housing market
  • Risk of foreclosure if you can’t make payments
  • Lender can reduce or freeze your credit line

Home equity loan

While home equity loans are similar to a HELOC—both use your house as collateral—these involve an upfront lump sum rather than a long-term draw period.


  • Fixed interest rate


  • Interest rate often higher than a HELOC

Cash-out refinance

While this method can be a great option for consolidating your debt or financing home improvement projects, you’ll need to fully refinance your mortgage.


  • Allows you to borrow more than you owe on your mortgage
  • Could pay for itself in long term by raising home’s value (if used on remodeling/repairs)


  • Higher interest rates
  • Need to pay closing costs

Pawn shop loan

The amount a pawn shop lends you hinges on the value of the item you want to pawn.


  • Fast option
  • No credit check
  • No application process


  • High interest rates
  • Potential fees
  • Shop can sell your item if you can’t pay on time

Borrow from family and friends

Sometimes, if you’re having trouble getting approved for a loan, looking to your loved ones may be your best option. Though, what seems like a simple agreement could become unnecessarily complicated.


  • Basic contract (or no contract)
  • Low interest rate regardless of credit


  • Disputes can lead to relationship strain
  • Doesn’t improve your credit score

How (and how not) to borrow money

Shop around for the lowest interest rate and negotiate if you can.

Some lenders will offer lower interest rates if you enable autopay, and you can also ask for a reduction after a series of on-time payments.

Avoid variable rate loans.

While loans with variable interest rates seem enticing, low introductory rates can go up over time and cost you in the long run.

Minimize the number of lenders you borrow from.

Use your bank for credit cards and mortgage, and you may get lower interest rates and fewer fees.

Don’t get too deep in debt.

If you already owe a lot of money, borrowing more may not be your best option. Try seeking other solutions to pay off your debt, especially if your debt-to-income ratio exceeds 43%.1

Keep your credit usage below 30%.

To protect your credit score, try to use less than 30% of your overall available credit. Otherwise, lenders may see a high credit utilization rate as a sign of financial trouble.

Exceed the minimum payment whenever possible.

By increasing the frequency of your payments, you can repay your loan over a shorter span of time, in turn lessening the burden of interest.

Always read the terms.

Take the time to read any agreement in its entirety before signing. Don’t hesitate to ask your lender questions, run it by an accountant, or even consult an attorney.