Credible takeaways
- If you have good credit and a personal loan doesn’t meet your needs, consider a personal line of credit, credit card, home equity loan, or HELOC instead.
- If you have bad credit and can’t qualify for a personal loan, consider a cash advance app, 401(k) loan, peer-to-peer loan, or salary advance as an alternative.
- Avoid payday loans and car title loans, which are costly and risky personal loan alternatives.
If a personal loan isn’t quite right for you, there are several personal loan alternatives you should know about, and some are options even with bad credit. We’ll take a look at credit cards, 401(k) loans, cash advances, and more. Depending on your credit score and financial goals, one may work better for you than another.
Personal line of credit
A personal line of credit is an unsecured credit line, much like a credit card, that you can withdraw from as needed on an ongoing basis during the credit line's draw period. As a form of revolving credit, you can withdraw up to your credit limit, typically an amount up to $50,000.
Lines of credit replenish with repayment, but you may pay a fee for the transaction. You access the money through a bank account transfer or by writing a special check. Interest rates are typically variable, which means your rate could fluctuate with market conditions. Lines of credit typically have higher rates than personal loans, but still often lower than credit card annual percentage rates (APRs).
Banks and credit unions offer personal lines of credit, often only to existing checking account holders. The requirements are similar to a personal loan — you’ll typically need good credit. But this type of financing may be better for people with ongoing financing needs, like a home improvement project.
Check Out: Personal Loan vs. Personal Line of Credit
Credit card
A credit card is another unsecured revolving line of credit that you access with a payment card. Most credit cards come with a grace period between the end of your billing cycle and your payment due date during which interest does not accrue — making it like a 30-day interest-free loan. With most credit cards, the interest charged is reflected in the APR, which is the annual borrowing cost expressed as a percentage of your outstanding credit card debt. Some credit card issuers offer a 0% introductory APR to new card holders that allows you to avoid interest for a period of time. They may also offer 0% balance transfers to existing card holders, which can be a way to lower your existing debt payments.
You can avoid ever paying interest on your credit cards if you make your payments in-full and on-time. If you need to carry a balance beyond the grace period, however, a personal loan will likely be a better option. That’s because the average interest rate for credit cards (21.86%) is much higher than the average interest rate for a 24-month personal loan (12.33%), according to the Federal Reserve. But as long as you budget for the full monthly payment, using a credit card can come with perks, like rewards for your purchases.
If your balance tends to carry over on a credit card, consider prequalifying for a personal loan. Prequalifying doesn’t affect your credit score, but it’s also not an offer of credit, and your final rate may differ. Proceeding to a formal loan application will trigger a hard credit inquiry, which can drop your score by a few points temporarily.
All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | SoFi Disclosures | Read more about Rates and Terms
Home equity-based financing
A home equity loan or home equity line of credit (HELOC) allows you to borrow against the equity you’ve built in your home. A home equity loan offers a lump sum upfront, which you repay in fixed monthly payments over several years, while a HELOC lets you borrow money repeatedly and repay as you go.
HELOCs come with the benefit of interest-only payments during an initial draw period, but they typically have variable interest rates, so payments can be unpredictable.
With either option, the money you borrow is secured by your home. That means that if you don’t make payments, the lender could seize your home in foreclosure. It also means home equity loan interest rates tend to be lower than personal loans, because there’s less risk to the lender. But you’ll also pay appraisal fees and other upfront closing costs with a home equity loan or HELOC. In addition to increasing costs, this can make the approval process lengthy — up to a month or more. And you’ll still generally need good credit for approval.
401(k) loan
A 401(k) loan allows you to borrow money from the vested balance in your retirement account. Your plan sponsor may or may not allow loans from your 401(k) and may have its own rules about borrowing and repayment. But generally, you can borrow up to $50,000 or half the vested balance, whichever is less. If half your vested balance is less than $10,000, you may be able to borrow up to $10,000. You’ll need to repay the balance with interest within five years to avoid a 10% penalty and taxes.
An advantage of 401(k) loans is that the interest goes back into your retirement account. Nevertheless, your money could miss out on potential growth. There are also no credit score or income requirements with a 401(k) loan, and interest rates are relatively low. But there’s a major drawback: If you leave your job, the entire balance may become due at once.
Salary advance
A salary advance is a loan agreement between you and your employer in which your employer gives you part or all of your paycheck early. Borrowing from your employer is best kept for emergencies when you don’t have other resources to rely on.
But if you’re facing a medical expense or need to repair your car in order to get to work, your employer may be understanding of your situation and give you a one-time advance. Make sure to check with HR or read your employee handbook to understand any limits or guidelines before asking.
Peer-to-peer loan
Peer-to-peer lending platforms allow you to apply for a loan issued by an individual rather than a bank or other financial institution. It may be easier to meet the requirements for a peer-to-peer loan than a personal loan.
But you may also pay more in interest and fees, and you may not have the same level of customer support. Check that the platform you use is reputable, and make sure to compare the rates and terms for a peer-to-peer loan with your options for bad-credit personal loans before accepting a loan offer.
Check Out: How and Where To Get a 500 Credit Score Loan
Cash advance apps
If you just need a few hundred dollars to tide you over until payday, consider a cash advance app. These apps offer a portion of your wages ahead of time, typically with automatic repayment out of your next paycheck.
Some apps charge a borrowing fee, while others run off optional tips or require a monthly subscription. You’ll also typically pay an expedited transfer fee if you want your money right away. Note that expedited transfer fees and tips can drive the APR into the triple digits, so avoid paying them if possible.
There’s usually no credit check, so no immediate risk to your credit score, but you’ll need an active bank account with a positive balance, and there may be direct deposit requirements as well. Dave, EarnIn, and Chime are a few examples of cash advance apps.
“Buy now, pay later” services (BNPL)
If you’re planning to make a large purchase you can’t afford all at once, you can also rely on point-of-sale financing, also known as buy now, pay later services. BNPL providers usually require a payment at the time of purchase, but you can pay the rest over time.
Often, you can split the cost into three additional payments without incurring interest. But if you need more time than that, you could get stuck with a high interest rate. Usually, the four installments only require a soft credit check, while the longer-term option may require a hard credit check, which will impact your credit score. These generally range from 3, 6, and 12 months. Affirm and Klarna are a couple of popular BNPL providers.
Financial assistance programs
If you find yourself frequently running out of cash, a loan or credit card may not fix the problem. You can get help with your budget from a nonprofit credit counseling agency, and if your income is low, you may be eligible for financial help with your everyday expenses.
For example, you may qualify for your state’s Medicaid program for free or low-cost health care, or you may be eligible for SNAP benefits to help with your groceries and other necessities. Consider also contacting 211, an online resource that can connect you with local assistance.
FAQ
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