America has a debt crisis, with national debt over $30 trillion. This should not be surprising, as most adult Americans have debt of some sort, whether from student loans, home loans, credit card debt, or other forms of credit. However, this does not mean credit is bad. It is a fact of life when considering how our economy works.
The debt crisis (and the fear of getting stuck in a cycle of debt) should not stop you from taking a loan when you need the money, but it should serve as a warning to be careful with how you borrow money. Some of the easiest ways to borrow money are also incredibly risky, with predatory lenders selling products like payday loans, which can come with interest rates of hundreds of percent.
Fortunately, there are alternatives. Low-risk ways to borrow money include using your bank or credit union. Let’s take a look at some of the best low-risk ways to borrow money.
The bank is the first port of call for many people looking to borrow money. This makes sense, seeing as you already use a bank for your financial services. Many banks make applications today easy to complete online for their customers, and they already have your information.
Bank loans are also regulated more strictly than those of many other private lenders. They cannot charge high interest rates without justification. This also means that they’re more likely to reject your loan application if you have a poor credit score or other indications that you won’t be able to pay the loan back.
The downside of bank loans is that there are fewer options for people in a bind, and that since they are generally privately owned or owned by shareholders, they are beholden to others rather than to their customers. You may also have to pay high application and administration fees.
Credit unions are, generally, non-profit enterprises that are owned by their members. Because of this, they often offer the best terms on loans and the lowest interest rates. However, you have to be a member of a credit union in order to borrow from them. This can be done fairly easily, by joining and opening an account with a nominal sum.
Credit union loans are meant as low-risk options, and as such you will be limited in the types of loans available. You will also have a harder time getting a loan if you are a high-risk individual.
Borrowing money from your 401(k) may not sound like a low-risk way to go. By taking money out of your retirement plan, you are putting your future at risk. However, when you take a look at the benefits and the restrictions, a 401(k) loan begins to seem very reasonable.
A 401(k) loan can be taken by speaking to the human resources department of your company. You will generally be restricted to a maximum of $50,000 or 50% of your current savings – whichever is less. While you still owe money, only what remains in your retirement plan will be earning dividends.
To get a 401(k) loan, you do not need a good credit record. In fact, it is a popular option for people whose credit records are extremely low. Furthermore, the 401(k) loan will not harm your credit record. On the flipside, it will not improve your credit score when you pay your loan back responsibly.
Interest rates on 401(k) loans are generally 1% or 2% above prime, which is much lower than what you would get on other personal loans, especially if your credit is bad. Furthermore, you are essentially paying interest to yourself, seeing as it all goes back into your retirement plan.
A 401(k) loan can be taken for a loan term of up to 5 years. This can give you the leeway to pay off some of the debts that are costing you money every month, and you may even be able to take another low-risk loan by the time you need to pay back your 401(k).
There are many other ways to borrow money in 2022, with peer-to-peer (P2P) lending, private loan companies, and more. However, the above ways are the most reliable for getting low interest rates and terms which are in your favor. Getting a loan with a high interest rate because you have bad credit is only likely to get you deeper into trouble, although when push comes to shove, you may not have a choice.
Try the above options before resorting to high-interest loans.