By ANNIE MILLERBERND by NerdWallet
Personal loans provide quick, unsecured funds that can pay for anything from home repairs to medical emergencies. Rather than require collateral like a home or car, many lenders prefer applicants with strong credit and a high income.
But what happens if you don’t meet a lender’s requirements? People who don’t qualify for a personal loan have alternatives to predatory high-interest lenders. These options can help fill an income gap, but each has advantages and disadvantages.
1. TRY OPTIONS WITHOUT A LOAN
See if you can get the money by making room in your budget and getting some extra money, says Tania Brown, an Atlanta-area certified financial planner and financial coach. Review your budget for any expenses you can cut back on, even temporarily, like dining out or streaming services.
To save on existing bills, ask billing companies, creditors or doctor’s offices if they offer interest-free payment plans, she says.
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Finally, combine the reduced expenses with additional income from a side job, like booking travel or selling things you no longer need, says Brown.
2. REQUEST A LOAN FROM A FAMILY MEMBER
If you’re comfortable asking a family member for money, that might be one of your cheapest loan options. It does not involve a credit check or credit reports, but may require additional planning.
Bring a “game plan” that includes a loan amount, interest rate and payment term when you broach the subject to take the guesswork out of the decision, says Brown. For a small loan, an informal loan document between you and the lender may be sufficient. Larger loans may require a formal agreement.
Ideally, an attorney will draft a formal loan document that you both sign, says Philip Mock, a Tulsa, Oklahoma-based CFP. He may have to pay a fee for the lawyer’s time.
Family loans can have tax implications, Mock says, so do your research when you’re drafting the loan agreement. For larger loans or more complex questions, consult a tax professional.
3. SPLIT A BIG PURCHASE
A “buy now, pay later” payment plan can ease the stress of a large purchase by breaking it up into multiple smaller payments. BNPL plans are available at most major retailers and can soften the financial blow of a new mattress or computer, for example.
BNPL is a quick and easy option because there’s no hard credit check or lengthy application process, says Kristian Brennon, a Kansas City, Missouri-based accredited financial advisor.
Because BNPL providers automatically withdraw installment payments directly from your account, she recommends setting payment due date reminders and making sure your account doesn’t overdraw.
4. GET A CASH ADVANCE
Cash advance apps like Earnin and Dave provide a quick down payment of a few hundred dollars with no credit check and lower fees than payday loans. But like payday lenders, these apps require access to a user’s bank account in order to withdraw the refund on their next payday.
Although convenient, apps should be used sparingly because they can be hard to budget for, says Brown. The amount you borrow today will leave that size a hole in your next paycheck, so anticipate that gap before you borrow.
“Make sure you’re getting exactly the amount you need and that you’re making a plan for how you’re going to pay for this,” she says.
BUILD SAVINGS OVER TIME
Savings are the interest-free way to pay for emergencies and discretionary expenses. Mock recommends having three to six months in savings, but having even a few hundred dollars in savings will help cover most unexpected expenses.
If you need help building your savings each month, Brennon recommends seeking professional help through the Association for Financial Counseling and Planning Education. It is offering free counseling services to the public until mid-December.
Make a list of your upcoming expenses, like Halloween costumes and holiday gifts, and budget for them ahead of time, says Brown. That way, your savings can be set aside for unexpected expenses or income gaps.
“Life is always going to have its ups and downs, and the key is learning to manage,” she says. “That helps turn what would be a crisis into an annoying inconvenience.”
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This article was provided to The Associated Press by the personal finance website NerdWallet. Annie Millerbernd is a writer at NerdWallet. Email: [email protected] Twitter: @annieanyway.