Various Ways to Borrow Money

Every now and then, we find ourselves in a temporary cash bind and need to borrow some money. Sometimes, it is business related, whereas other times it is personal. Certain methods of borrowing money are cheaper, meaning you pay a lower interest rate and/or loan fees. Other methods may be more expensive but provide either greater flexibility or convenience. Here are a few common methods people use to borrow money.

Family Member Or Friend

The oldest, perhaps most traditional method of borrowing is just getting a temporary loan from a family member or friend. The advantage is that generally your friend will do it out of friendship and may not even charge interest. Of course, the downside of this is that loans can often strain relationships, and your family members may not be able to or interested in loaning you money.

Credit Card

Credit cards are a common use for short term credit. There are various ways to borrow on your credit card. If you are buying something, you can just charge it to your credit card and not pay off your full balance at the end of the month. In this case, you are paying standard APR interest to the credit card company, which can typically range anywhere from 8% to 25%.

Other ways to borrow on your credit card are cash advances and balance transfers. A cash advance is when you get money at an ATM. This method is typical at casinos. Beware of this though. Not only are you charged a cash advance fee, typically 3% of the amount requested, the interest on cash advances is generally around 21%. Furthermore, whoever initiates the cash advance may charge a fee, which is often about 7% of the transaction amount.

A balance transfer is when you shift debt from one credit card to another. For example, you may wish to move a balance from a high APR card to a new one that gives you a year or so of no interest on your balance transfers.

Margin Loan

If you own stocks or mutual funds, you can borrow money from your brokerage. The brokerage will use the stocks or mutual funds as collateral.  The advantage of borrowing on margin is that margin interest tends to be much lower than credit card interest. Margin rates typically range anywhere from 4% to 15%.

Beware of borrowing too much on margin though. If the value of your stocks or mutual funds go down, your broker may force you to sell some of these holdings to decrease the amount you owe the broker.

Unsecured Loan

You can sometimes apply for an unsecured loan through your bank. An unsecured loan is when the bank gives you a loan based purely on your income and credit score, no collateral is required. Generally, you will make payments to pay off the loan, similar to a car loan or a mortgage payment. Banks will often give unsecured loans up to $50,000. The amount again depends on your income and credit score.