At a Glance

Personal loans are a type of financing you can get from a bank, credit union, or online lender. You can use personal loan funds for just about anything, including home renovations, paying for a wedding or vacation, debt consolidation, covering medical bills or emergency expenses, and more. Typically, the higher your credit score, the better loan term and APR you’ll get.

Personal loans can be a great option if you need cash, but there are alternatives to traditional personal loans that should be explored prior to choosing one, including:

Debt consolidation loan

Similar to personal loans, debt consolidation loans are designed specifically for bringing together debt under one roof. When you use a debt consolidation loan, you’re effectively taking out a loan to pay off other loans. Then, you’ll just have a single monthly payment toward your new loan each month.

This can save you in interest charges: ideally, your consolidation loan has a lower interest rate than your other debts. You’ll also be able to pay off your loan faster, and your debt will be more manageable since there will be just one payment instead of many.

Check out the debt consolidation loans that will meet your needs

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Balance transfer credit card

Using a balance transfer credit card, you can transfer credit card debt from multiple cards onto one. Typically, the balance transfer card has a 0% APR introductory period, giving you time to pay off the debt before starting to accrue interest. Typically, the zero interest period lasts 12-24 months.

You’ll likely need an excellent credit score to qualify, so if your credit score is poor this may not be a good option. You must be able to pay off the debt before the introductory period ends. If not, you’ll start paying the card’s normal interest rate on the remaining balance. Additionally, most cards charge a balance transfer fee on the total you transfer.

Payday loan

A payday loan is a short-term loan for a small amount like $500 or less, that is meant to be repaid with your next paycheck. These loans require proof of identification, income, and a bank account, and can be an option for those who have poor credit.

However, experts do not recommend payday loans because it can be aggressively costly. Once you’re approved, the funds from a payday loan are transferred almost immediately. You must then provide the lender with a signed check or permission to withdraw money from your bank account.

The loan is due immediately after your next paycheck, and if you don’t pay it, the lender will withdraw the amount of the loan plus interest. This can be expensive: these loans charge a fee on the amount borrowed, which is then added back to the total amount owed each time the loan isn’t repaid in full. These fees can be equivalent to 300% APR or greater.

However, some credit unions offer payday alternative loans, or PALs, which are designed to prevent borrowers from having to get a high-interest payday loan. With terms from one to six months, the fees are typically lower. To apply, you must be a member of the credit union for at least one month.

Personal line of credit

A personal line of credit works similar to both a credit card and a personal loan. When approved, you get a credit limit you can withdraw from, similar to how you’d use a credit card. You pay interest on what you borrow, which can be any amount up to your limit.

Requirements for personal lines of credit are similar to those for traditional personal loans, so you should have great credit to get the best terms. Many borrowers enjoy the flexibility personal lines of credit provide, though it’s also key to understand all fees you’re being charged.

Credit card

If you have excellent credit, applying for a new credit card can be a financing option. However, be sure to do your research before applying to find the right type of card for your spending habits. For example, you may want to explore a cash back credit card, or a card that has points and/or miles rewards.

You should also search for a card that has a relatively low APR so if you do carry a balance from month-to-month, you won’t accrue as much in interest. However, it’s strongly recommended to only get a credit card if you will be able to pay off the balance in full each month. This will help prevent you from getting into credit card debt, which can be difficult to pay off.

Also be aware of any fees the credit card company charges.

Peer-to-peer loan

Some online lending platforms, like LendingClub, match you with an investor who can review loans available and select which one they want to fund. If they choose to fund your needs, you get the cash. However, you’ll be charged interest, and you may have to pay a loan origination fee.

The good news is interest on these loans can be relatively low if you have excellent credit, and the application is simpler than one for a bank or credit union. Depending on the lender, they may also be a little more flexible with repayment.

Home equity loan or HELOC

Home equity loans (HEL) and home equity lines of credit (HELOCs) are lending options if you own your home. These allow you to borrow against the equity in your home, though both options offer different features:

  • HELs have a fixed monthly payment and fixed interest rate
  • HELOCs have variable interest rates, which can change the monthly payment

While borrowing from your home equity be a good option to consolidate high-interest debt, you must be sure to pay back the bank or risk losing your home. Typically, these have longer repayment periods and loan amounts than traditional personal loans or debt consolidation loans, as well as lower interest rates. But they also require you to have a certain amount of equity in your home to qualify.

Related: Home Equity Loan vs HELOC

Credit union loan

If you belong to a credit union, you may qualify for a credit union loan. These loans are typically smaller personal loans, but the credit union may consider factors other than your credit score, such as your history as a member, to help you qualify. Borrowing from your credit union may be an option if you have poor credit.

Most of these loans have lower interest rates relative to other personal loans because federal credit union rates are capped at 18%.

Cash-out refinance

A cash-out refinance is another alternative where you must own your home. A cash-out refinance replaces your existing mortgage with a new larger mortgage with a different financing structure. You’re then able to withdraw the difference and use those funds to consolidate debt, improve your home, or spend it on anything else.

The primary downside like HELs and HELOCs is that you risk losing your home if you can’t repay the loan. This is no small penalty.

401(k) loan

If you’re truly in need, a 401(k) loan can be an option to pay for short-term emergencies. When you borrow against your 401(k), so long as you repay the loan on time and in full if you leave the employer, you won’t be taxed. Borrowing from your 401(k) also doesn’t require a credit check, and the interest you pay is paid back to your own account.

However, this is not an option with all employers, and for others you may not be able to make additional contributions to your 401(k) while repaying the loan. This could delay your progress in saving for retirement, and you could risk heavy fees or interest if you don’t repay the loan within the designated term. As noted above, 401(k) loans should only be used in times of serious financial need.

Related: Payoff Debt or Save for Retirement

Credit card cash advance

While this isn’t a cheap option, you can get cash fast using your credit card. Put simply, a cash advance is like a loan against the credit limit on your credit card. When you get your credit card, you’ll be given a PIN, or you can request one through your online portal. Once you receive the PIN, which will be mailed to you within 7-10 business days, you can use your credit card at an ATM to get cash.

Keep in mind: there are usually cash advance fees that represent a certain percentage of the amount you withdraw. There also may be a higher cash advance APR than purchase APR, so you’ll accrue interest at a faster rate. Plus, there is no grace period, meaning you’ll immediately start accumulating interest on any amounts withdrawn.

Learn more: How to Get Cash From a Credit Card at an ATM

Debt settlement

Debt settlement is when you negotiate with your lender to pay a lower amount than what you owe to satisfy the debt. You can either do this yourself, or work with a debt settlement company or lawyer to negotiate on your behalf.

When settling debt, you’re offering a lump-sum payment in exchange for a portion of your debt being forgiven. However, to do this, you must stop the minimum monthly payments on the debt, which can lead to late fees, accrued interest, and damage to your credit score.

Settling your debt may seem like an ideal option, but the extra charges you’ll have to pay and the decrease in your credit score may not be worth it. This should be one of your last resorts.

Family or friends

If you need cash and securing a loan is too risky or out of the question, you may be able to ask a trusted family member or friend for the funds you need. This option gets you the finances without interest or fees but be cautious. If you don’t repay the person, it could lead to ruined relationships. Also be sure your loved one only gives you what they can afford.


While many alternatives to traditional personal loans are other types of loans, there are a few options available that aren’t institutional loans at all. You don’t necessarily need to get a bank involved. For example, you can ask a trusted friend or family member to borrow the funds. You could also use a balance transfer credit card to pay off credit card debt or get a credit card cash advance.

Determining which type of financing option is right for you depends on your personal situation. Consider factors like interest rates, collateral required, processing time, repayment terms, among others. The amount you need, what you need it for, and how easily you’ll be able to repay the loan should all be considered.