Alternatives to Personal Loans

There are several alternatives to personal loans that you might wish to consider, when requiring to fund a particular purchase. These are:

1. Save up until you have enough money to purchase the item. If you are adverse to the thought of having a personal loan, then your best bet may be to put aside money each month into a savings account until you have enough money to fund your purchase. The downside to this is that it may take some time.

2. Overdraft. An overdraft is where a bank allows you to borrow money on your current/checking account. It is best used where you expect to be able to pay the money back within a fairly short time-frame. However, it is a more expensive means of borrowing than taking out a loan. Whilst you might get a loan at about 7 percent, an overdraft may charge you at something like 17 percent. Also, if you decide to borrow on an overdraft, you need to make sure you don’t exceed your authorized overdraft limit, otherwise some quite hefty penalty fees may be applied.

3. Credit cards. Again, like overdrafts, credit cards are generally an expensive way of borrowing, but can be useful where you are confident that you can speedily pay the money back. If you’ve managed to secure a good deal, like 0 percent for six months, then this may be a very viable option. The main word of caution that I would make is that some people fall into the trap of only making the minimum required repayment each month. This can be a disastrous approach as you end up paying interest on interest. You should always pay off the full balance at the end of each month if you can afford to, or alternatively pay off as much as you can comfortably afford to.

4. Make a trade. I realize that this will not usually be an option, but in some circumstances you may own something that the seller would be happy to trade for the item that you want.

5. Sell something to raise money. Maybe you have two cars but could get by with just one. Or you have shares that you could cash in. Raising money in this way will mean you don’t need to take out a loan and may make good economic sense.

6. Finally, another option might be to see if a relative will lend you the money although most people would be reluctant to have to go down this route.