Family loans and crowdfunding
The Fed found that 28% of those who would be short $400 would borrow from a friend or family member. That’s certainly an option, though it obviously requires friends and family members with the means to help.
There is a clear benefit: Borrowing from a friend or family member can come with fewer financial strings attached. There are, however, still emotional ones: As readers of MarketWatch’s Moneyologist column know, lending – or even gifting – money to family members can lead to years of tension.
Offering to sign a loan contract could relieve some of the awkwardness and give the lender a sense of security, Podnos said, though the rate matters: The IRS may consider a below-market-rate loan with little or no interest payments to be a taxable gift.
Would-be borrowers might consider using an online platform to collect donations from friends, family and even strangers, though donors should consider crowdfunding site GoFundMe’s note that “there is no way to 100% guarantee that a user’s GoFundMe donation page contains accurate or truthful information.”
Crowdfunding sites also tend to take a percentage of donations as commission. Still, because online campaigns can be easily shared, needy individuals may get help from unexpected places: An aspiring nun used GoFundMe to pay off her a student loan balance that was prohibiting her from entering her order.
Consumers with banks may want to seek personal loans from that bank. There are also digital options: The availability of personal loans from online-only lenders has surged in recent years, and consumers may find more favorable payday loans New Mexico rates after shopping around.
The use of marketplace lending, or systems in which consumers lend to other consumers, has become more mainstream: Marketplace lending volume grew from $17 billion to an estimated $19.2 billion last year, according to CFSI.
Interest rates from organizations including LendingClub Corp. LC, -1.78% , Prosper Marketplace and Avant can be as high as credit cards, but interest is not compounded. Avant’s terms recently ranged from 9.95% to 36%, with loan lengths ranging from 24 to 60 months. Prosper was advertising rates between 5.99% and 36%, and LendingClub rates up to %.
Some experts say these may be a better choice than credit cards, which begin compounding interest immediately and could hurt your credit score by using a high percentage of your available credit; personal loans can help your score if they’re paid off quickly. The loans’ fixed terms can also make them attractive.
Some 401(k) plans let you take out a loan secured against the 401(k), which would not be subject to the same penalties as a withdrawal, Podnos said. Potential borrowers who have 401(k) accounts may be able to take advantage of that option.
Secured loans, which require borrowers to offer collateral, may also result in better interest rates, according to Podnos. (Of course, if the borrower can’t pay back the loan, the assets could be lost.)
Consumers with access to credit unions may be able to turn to them for loans that can have lower rates than other organizations offer.
Credit unions, nonprofit organizations that are owned and controlled by their members, have different membership structures: Some qualify to join based on where they live, where they work or where they worship.
A member interacts with a representative at Affinity Federal Credit Union in New Jersey.
The average interest rate on a credit card from a credit union was % in September, compared with 12.7% for credit cards from banks, according to market intelligence firm S&P Global.