Personal loans provide fast, unsecured funds that can pay for anything from home repairs to medical emergencies. Instead of requiring collateral like a house or car, many lenders prefer applicants with strong credit and high incomes.
But what if you don’t meet a lender’s requirements? People who don’t qualify for a personal loan have alternatives to high-interest, predatory lenders. These options can help cover an income gap, but each comes with pros and cons.
1. TRY NON-BORROWING OPTIONS
See if you can come up with the money by making room in your budget and pulling in some extra cash, says Tania Brown, an Atlanta-area certified financial planner and financial coach. Review your budget for any expenses you can cut, even temporarily, like dinners out or streaming services.
To save on existing bills, ask billing companies, creditors or doctor’s offices if they offer interest-free payment plans, she says.
Finally, couple pared-down expenses with extra income from a side gig like ride-booking or selling things you no longer need, Brown says.
2. BORROW FROM A FAMILY MEMBER
If you’re comfortable asking a family member for money, that could be one of your cheapest borrowing options. It doesn’t involve a credit check or credit reporting, but it may take extra planning.
Bring a “game plan” that includes a loan amount, interest rate and repayment term when you broach the subject to take the guesswork out of the decision, Brown says. For a small loan, an informal loan document between you and the lender could be enough. Larger loans may require a formal agreement.
Ideally, an attorney will draft a formal loan document that you both sign, says Philip Mock, a CFP based in Tulsa, Oklahoma. You may have to pay a fee for the attorney’s time.
Family loans may come with tax implications, Mock says, so do your research when you’re drafting the loan agreement. For larger loans or more complex questions, consult a tax professional.
3. SPLIT UP A BIG PURCHASE
A “buy now, pay later” payment plan may ease the stress of a large purchase by splitting it into multiple smaller payments. BNPL plans are available at most major retailers and can soften the financial blow of a new mattress or computer, for example.
BNPL is an easy, fast option because there’s no hard credit check or long application process, says Kristian Brennon, an accredited financial counselor based in Kansas City, Missouri.
Because BNPL providers automatically withdraw the installment payments directly from your account, she recommends setting payment due date reminders and ensuring your account won’t be overdrawn.
4. GET A CASH ADVANCE
Cash advance apps like Earnin and Dave provide a quick influx of a few hundred dollars with no credit check and lower fees than payday loans. But like payday lenders, these apps require access to a user’s bank account in order to withdraw the repayment on their next payday.
Though convenient, apps should be used sparingly because they can be tricky to budget around, Brown says. The amount you borrow today will leave a hole that size in your next paycheck, so she recommends anticipating that gap before borrowing.
“Make sure that you are getting exactly the amount you need and that you are mapping out a plan as to how you’re going to pay this off,” she says.
BUILD SAVINGS OVER TIME
Savings is the interest-free way to pay for emergencies and discretionary expenses. Mock recommends having three to six months’ worth of expenses saved, but having even a few hundred dollars in savings will help cover most unexpected expenses.
If you need help building your savings each month, Brennon recommends finding professional help through the Association for Financial Counseling and Planning Education. It’s offering free counseling services to the public through about mid-December.
List your expenses to come — like Halloween costumes and holiday gifts — and budget for them ahead of time, Brown says. That way, your savings can be reserved for unexpected expenses or income gaps.
“Life always is going to have ups and downs, and the key is learning how to manage,” she says. “That helps to turn what would be a crisis into just an annoying inconvenience.”
