Best Ways to Borrow Money: Personal Loans, Credit Cards, Home Equity Loans, and More

The Federal Reserve’s 2023 survey found that 37% of U.S. households would not be able to cover a $400 emergency expense with cash, leading many to resort to borrowing money. With various options available, it’s important to choose the best way to borrow money to avoid excessive rates and fees that could lead to financial hardship.

Here are the 8 best ways to borrow money:

1. Personal loans: Offer convenience, competitive rates, and no collateral required.
2. Credit cards: Provide convenience and rewards, but come with high interest rates on cash advances.
3. Home equity loans: Offer low interest rates and fixed terms for homeowners with significant equity.
4. Home equity lines of credit (HELOC): Provide flexibility and low interest rates for borrowing against home value.
5. Buy now, pay later loans: Allow for spreading payments over time with lower interest rates and fees.
6. Margin loans: Offer competitive rates for investors with significant non-retirement account balances.
7. Friends and family loans: Provide low rates and flexible terms, but can strain relationships if not handled carefully.
8. 401(k) loans: Borrow against retirement savings with the interest paid back into the account.

It’s important to avoid payday loans and title loans, which come with extremely high interest rates and fees that can lead to financial ruin. Instead, borrowers should only borrow what they need, set guardrails for borrowing, and never miss a payment to avoid falling into a debt trap.

For those with bad credit, options like personal loans, credit cards, buy now, pay later loans, and cosigners can still provide access to funds, but at higher costs. Researching all possibilities before choosing a borrowing method is crucial to making a smart financial decision. Remember to only borrow what you need, repay loans on time, and keep a healthy debt-to-income ratio to maintain financial stability.