The need to borrow money is a reality, not an option. Everyone, at some point in their life, will need to take out a loan. Whether you need to pay for a medical procedure, you want to get new furniture for the home, or are simply a few hundred dollars short and have to pay your mortgage, you will need to know what types of loans you can get.
In the last 10-15 years more and more financing options have been developed, up to the point where it is now better to shop around and look for the best company or service, rather than go straight to the bank every time you need money.
This having been said, there is a big difference between banks, credit unions, financing companies, online commercial lending platforms, crowdfunding services, and peer-to-peer lending websites. They all offer you the ability to take out loans, however, the way in which they determine who is eligible for their services, and the terms and conditions that you will have to agree to are very different. In many ways, each platform caters to the needs of different types of individuals or businesses.
- Go to your local bank
Banks may not always be the best choice to get a loan, especially if you have bad credit. However, they do offer the largest variety of financial services and products. They offer mortgage credits, personal loans, construction loans and credit lines for businesses, among others. The money usually comes from the deposits made by other clients, which are then taken by banks and given out as loans.
The main advantage when it comes to doing business with banks is the fact that the terms and conditions that they impose depend on your relationship with them. If you made your payments on time in the past, they will offer you a better deal.
- Contact a credit unions
These often go under the radar. They are cooperative institutions controlled by their members. In most cases, these individuals are members of a community or an organization of which you have to be a part of in order to get a loan.
While they are similar to banks in terms of structure, they are non-profit organizations, which also means that their rates are considerably lower.
- Peer-to-Peer lending
P2P services are usually found online. They are platforms that put borrowers in contact with lenders and supervise the financial affairs to ensure that everything goes smoothly. The way they work is simple. Borrowers create an account and are entered into a database. Lenders are then able to look at the listings and decide how much money they want to risk lending someone. A borrower may not receive the full amount that he is asking for from a single lender, but others may come and contribute.
- 401(k) Plans
401(k)s are generally used to secure a stable retirement fund. They allow employees to invest money on a tax-deferred basis. These plans can be used as a way to get a loan, especially when considering that the money is basically yours and you are able to withdraw it without having to pay an application fee. The downside is that there is a 10% penalty if you are under 59.5 years old and want to permanently withdraw all the money that you’ve contributed.
- Set up a margin account
These allow brokerage customers to borrow money that they can then invest in securities. The way they work is relatively simple, considering that the funds in the brokerage account serve as collateral for the loan.
As far as interest rates are concerned, these are often better than those offered by other platforms. Furthermore, if you have a considerable amount of equity in your margin account, getting a loan takes considerably less and the eligibility conditions are less demanding.
These are the options that you have to choose from when you need money. The best way to determine what type of loan you should get is to first consider what amount of money you need and establish what you want to do with it. Afterward, do the math and evaluate how much profit you will make and if it will be enough to both pay back the loan and to get you in a better position than the one you were initially.
Keep in mind that this we have explained what each of them is and how it can help you, but you will still have to pay attention when it comes to deciding what platform to use. For example, there are hundreds of online commercial lending services and each of them has its own interest rate and penalties in case you miss a monthly payment. The same applies to crowdfund platforms. Some of them allow you to keep the money that you raise even if you don’t hit your goal while others will return the funds back to their respective owners.