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Five Alternatives to Bank Loans and Personal Loans

Want to start a business? Buy a house? An investment property? If you are looking to raise some money for a specific reason, the usual course of action is to take out a bank loan. 

The process for getting bank loans isn’t complicated, but you will need to have assets in your name and a fairly good credit score to be able to obtain one. Sometimes, the bank's requirements for a loan can be ridiculous, non-sensical, or just not compatible with your situation.

My great-grandfather actually had to start his own bank, because the only bank in our small town refused to lend him money.    

For those that can qualify for a bank loan, this is often the best way to get a loan to fund whatever project you have in mind. 

There are situations, however, when somebody will not qualify for a bank loan. In this case, they will need to look for alternative methods to fund their project. Here are a few alternatives to getting a bank loan that you may want to consider.

Five Alternatives to Personal Loans


    Alternative to Bank Loans #1: Borrow from Family or Friends

    You may want to try to borrow the money from either family or friends. 

    You need to be extremely careful about paying this money back. Taking out a loan from family and friends without paying it back can cause a huge rift in your personal relationships. Remember, "He who troubleth his own house shall inherit the wind." 

    To show that you are serious, you should write up a contract and sign it so that they know that you are serious about paying it back. It also gives them confidence that if trouble comes up down the line, you will have to take responsibility for the loan that you took out from them. 

    A contract is also important if you die before the loan is repaid. Your family creditor will need a contract to receive his or her money from your estate. 

    Alternative to Bank Loans #2: Find a Co-Signer

    If you can’t qualify for bank loan on your own and your family and friends don’t have the money themselves to loan you, you can try using a co-signer. 

    A co-signer is somebody who has better credit than you (or just additional credit) who can sign the loan (co-sign) in addition to you. 

    As with borrowing money from family and friends, the cosigner is ultimately responsible for the loan if you end up defaulting on it. So again, you want to be very careful before deciding to do something like this. You don't want to hurt your co-signer friend.

    Alternative to Bank Loans #3: Credit Cards

    I know, I know. Credit card debt is the worst, right? Well, not always. 

    If you have credit cards, you may be able to fund your project through your credit cards. But, there's an obvious problem with this alternative. Credit cards are basically a very high interest rate loan. 

    The good part about it is that you are able to get the loan without any collateral. Plus, many credit cards have amazing bonuses. 

    Credit Card Life Hack: Using a credit card in conjunction with a persona loan can be very profitable. Let's say you received a personal loan to finance a home remodel. If your contractor will accept payment by credit card, (1) open up a new credit card account, (2) pay him or her by credit card, and (3) rake in all those signing bonuses. 

    All those temptations aside ...

    You need to think extremely hard about whether the ultimate interest rate you will be paying on the loan is worth what you need the money for. In most cases, it’s not advisable to use credit cards as a way to pay for something you need unless you can pay off the credit cards immediately. Nevertheless, credit cards are an option when all others fail.

    Alternative to Bank Loans #4: Peer to Peer Lending

    There are a number of peer to peer lending websites on the Internet such as prosper and lendingclub. In this situation, you list what you need the money for, and people will decide the interest rate they are willing to lend the money to you for. This can often mean that you are able to receive the loan at a rate that is less than you would pay for using credit cards without having to put up assets for the loan. When you are not able to secure a bank loan on your own this is often the best option. More and more people are turning to peer to peer lending when they aren’t able to get a bank loan for what they need.

    Alternative to Bank Loans #5: Trade or Barter

    Do you need the loan for something that you can trade rather than pay for? You should seriously consider making a trade. 

    For example, if you need the money to pay for a repair on the roof, you may be able to trade the labor and cost of materials for some skill that you have in return. While this isn’t an option in all cases, it can work out to be mutually beneficial to both parties in many cases. It is, at the very least, worth considering.

    By using a bit of creativity, you should be able to find a number of alternative solutions to your underlying problem or purpose. 

    Conclusion: Alternative Financing Options and Alternative Lending Options Means Opportunities 

    There are always ways to get the money you need, if you do not qualify for a standard bank loan.

    Maybe it isn’t easy money, but there are opportunities out there and alternative lending sources. 

    Take the time to consider what the alternatives are and what will best suit your needs. By doing this, you should be able to find a way to fund whatever project you have in mind.

    Endnotes for Five Alternatives to Bank Loans

    Original title: David Treehouse, "Five Alternatives to Bank Loans," June 9, 2013, www.debtreduction101.com/2013/06/09/101451_five-alternatives-to-bank-loans.html


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