Explore alternative options to personal loans, including non-borrowing options, borrowing from family members, buy now pay later plans, cash advance apps, and building savings over time. Learn about the pros and cons of each option and how to plan for unexpected expenses with professional financial advice.

Summary

• Personal loans offer quick access to unsecured funds for various expenses, but lenders generally prefer applicants with good credit and high income.
• Alternatives to personal loans include high-interest, predatory lenders, but it’s important to weigh the pros and cons before making a decision.
• Non-borrowing options to consider include reviewing your budget and reducing or eliminating expenses, inquiring about interest-free payment plans from billing companies, creditors, or healthcare providers, and supplementing income with a side gig.
• Borrowing from a family member can be a cost-effective option, but a plan should be in place, including a loan amount, interest rate, and repayment term. Formal loan agreements may be necessary for larger loans and there may be tax implications to consider.
• Buy now, pay later payment plans can make large purchases more manageable by breaking them up into smaller payments, and they don’t require a hard credit check or lengthy application process.
• Cash advance apps can provide a fast influx of money with no credit check, but they require access to bank accounts and should generally only be used when absolutely necessary.
• Building savings over time is an ideal way to pay for unexpected expenses, and it’s recommended to save three to six months’ worth of expenses.
• Seek professional advice from the Association for Financial Counseling and Planning Education and plan ahead by budgeting for upcoming expenses to ensure you have enough money in savings to cover unexpected costs or income gaps.

Exploring Alternatives to Personal Loans

Personal loans offer quick access to unsecured funds for various expenses such as home repairs or medical bills. Generally, lenders prefer applicants with good credit and high income, but don’t require collateral like a house or car. For those who don’t qualify for a personal loan, there are alternatives to consider such as high-interest, predatory lenders. These options can provide a solution, but it’s important to weigh the pros and cons before making a decision.

MORE: What Is The Benefit Of Obtaining A Personal Loan?

1. Non-Borrowing Options: Reviewing Your Budget and Reducing Expenses

Tania Brown, a certified financial planner, and coach based in Atlanta suggests looking for ways to generate the funds without borrowing. Review your budget and see if there are any expenses you can reduce or eliminate, such as dining out or subscription services. Additionally, inquire with billing companies, creditors, or healthcare providers if they offer interest-free payment plans. Furthermore, supplement your income by taking on a side gig, such as driving for a ridesharing service or selling items you no longer need.

2. Borrowing from a Family Member: Planning and Tax Implications

If you’re open to borrowing from a family member, it may be a cost-effective option as it does not involve a credit check or credit reporting. However, it’s important to have a plan in place when discussing the loan with your family member. Tania Brown, a certified financial planner, and coach based in Atlanta recommends having a loan amount, interest rate, and repayment term ready when you approach them to make the decision easier. For smaller loans, an informal loan document between you and the lender may suffice, but larger loans may require a formal agreement. It’s advisable to have an attorney draft the formal loan document, and both parties should sign it, according to Philip Mock, a CFP based in Tulsa, Oklahoma. Keep in mind that an attorney’s fee may apply. Additionally, it’s important to note that family loans may have tax implications, so it’s recommended to do research and consult a tax professional for larger loans or complex questions.

MORE: Best Personal Loan Options

3. Buy Now, Pay Later Payment Plans: An Affordable Way to Make Large Purchases

“Buy now, pay later” payment plans can make large purchases more manageable by breaking them up into smaller payments. These plans are commonly offered by major retailers and can provide a more affordable way to purchase items such as a mattress or computers.

According to Kristian Brennon, an accredited financial counselor based in Kansas City, Missouri, BNPL plans are a convenient and quick option as they don’t require a hard credit check or lengthy application process. He recommends setting reminders for payment due dates and making sure your account has enough funds to avoid overdrawing.

MORE: How to Make a Smooth Return with ‘Buy Now, Pay Later Services

4. Cash Advance Apps: Convenient but Use with Caution

Cash advance apps like Earnin and Dave can provide a fast influx of money with no credit check and lower fees than payday lenders. However, they require users to give access to their bank accounts so the repayment can be taken from their next payday.

Though convenient, cash advances should generally only be used when absolutely necessary as it can be hard to account for that cost in the budget. Brown recommends users make sure they are getting exactly the amount they need and plan out how the debt will be paid off ahead of time.

Building Savings Over Time: A Proactive Approach to Covering Unexpected Expenses

Savings is an ideal way to pay for emergency and discretionary expenses since it doesn’t accrue interest. Mock recommends having three to six months’ worth of expenses saved, although even a few hundred dollars can cover most unexpected costs.

If you need help building your savings each month, Brennon suggests seeking professional advice from the Association for Financial Counseling and Planning Education. They are currently offering free counseling services until mid-December.

To make sure you have enough money in savings to cover unexpected costs or income gaps, Brown advises planning ahead by budgeting for upcoming expenses.

“Life always has its ups and downs,” she says, “but knowing how to manage them can help turn what could be a crisis into just an annoying inconvenience.”

MORE: How To Avoid The Pitfalls Of Buy Now Pay Later

Questions Answered in this Article

1. What are some non-borrowing options to consider when looking for funds? Answer: Review your budget and see if there are any expenses you can reduce or eliminate, inquire with billing companies, creditors, or healthcare providers if they offer interest-free payment plans, and supplement your income by taking on a side gig.
2. How can I borrow from a family member and what should I keep in mind? Answer: Have a plan in place when discussing the loan with your family member, such as having a loan amount, interest rate, and repayment term ready. For smaller loans, an informal loan document between you and the lender may suffice, but larger loans may require a formal agreement. Consult a tax professional for larger loans or complex questions and keep in mind that family loans may have tax implications.
3. What are “buy now, pay later” payment plans and how can they help with large purchases? Answer: Buy now, pay later payment plans are commonly offered by major retailers and can provide a more affordable way to purchase items such as a mattress or computers. They don’t require a hard credit check or lengthy application process but it is recommended to set reminders for payment due dates.
4. What are cash advance apps and what are the pros and cons of using them? Answer: Cash advance apps like Earnin and Dave can provide a fast influx of money with no credit check and lower fees than payday lenders. However, they require users to give access to their bank accounts so the repayment can be taken from their next payday. They should generally only be used when absolutely necessary as it can be hard to account for that cost in the budget.
5. How can I build savings over time to pay for unexpected expenses? Answer: Savings is an ideal way to pay for emergency and discretionary expenses since it doesn’t accrue interest. Three to six months’ worth of expenses should be saved, although even a few hundred dollars can cover most unexpected costs. Seek professional advice from the Association for Financial Counseling and Planning Education, and plan ahead by budgeting for upcoming expenses.