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There are a variety of ways to borrow money when cash is needed. A few common places to start might be traditional banks or credit unions, or maybe a friend or family member who’s willing and able to consider lending.

If none of those options sound appealing, another option might be to borrow money online. Online lenders are becoming a more mainstream, acceptable alternative to traditional banks. What’s behind this increase in online lending, and what are some ways to borrow money online?

Why Have Online Lenders Grown in Popularity?

When lockdowns started in response to Covid-19 in 2020, people had to find different ways to do things they might have been accustomed to doing in person. Banking and other financial transactions were among those things. Brick-and-mortar banks limited access to branches or hours they were open, and retailers were hesitant to accept physical money. But transactions needed to keep happening, so consumers began moving online to complete them.

Familiarity, for Some Customers

A growing proportion of consumers is accustomed to using computers for many aspects of daily life, and making online financial transactions is no different. More people may be looking for things like:

•   Online applications.

•   Streamlined underwriting processes.

•   Automated funds transfers.

A Different Kind of Personal Service

Whereas in the past, personalization meant having a face-to-face relationship with a banker, personalization in today’s world can mean information that is relevant to an individual’s financial needs. This might look like things that can be more quickly accessed online, such as:

•   Personalized financial trends in a portfolio so they can make informed decisions about their financial goals.

•   Insights about their spending and saving so they can budget monthly income and expenses to meet their needs.

Time Saving

Customers may also want an experience that saves time. Automating tasks is a timesaver that can easily be done with online financial tools. In the case of online lending, the option to set up automatic bill payments and automate other tasks are likely to be considerations when a customer is choosing an online financial company.


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

Where to Borrow Money Online

When looking for an online lender, you may want to consider the reputation of the lender, safety precautions the lender has in place, or types of loan products offered. In addition, each person should determine their individual comfort level of doing business with or without personal interaction.

Banks

A traditional bank may be a good option for someone who is more comfortable sharing private financial information at an in-person meeting or who doesn’t know how to borrow money online.

Applying for a loan through a traditional bank might include a visit to a brick-and-mortar branch of the bank along with online components, making this a hybrid approach. Since traditional banks have upkeep costs related to physical locations, their fees or interest rates might be higher than other lending options.

Recommended: How to Get Approved for a Personal Loan

Credit Unions

Similar to banks, credit unions generally have physical locations, but may also have online services. Financial services offered by credit unions are similar to banks and other financial institutions. There are usually specific requirements to be a member of a credit union, such as employment-related or residence in a particular region, or membership in a particular group. Credit unions may offer member benefits such as low fees, high savings rates, and low loan rates.

Peer-to-Peer Lending

Peer-to-Peer (P2P) lending is akin to matchmaking. A prospective borrower submits an application with an online marketplace, which matches the applicant with investors. Some online marketplaces for P2P lending are Prosper, Upstart, and Peerform. P2P lending may be a good place to look for an online loan for someone who isn’t able to qualify for a loan from a conventional lender, or if an alternative funding source is preferred.

Recommended: What Are Personal Loans Used For?

Online Lenders

The lack of brick-and-mortar branches might deter some customers but attract others. The deciding factor for some customers might be how well the process works for them, with less emphasis on having a face-to-face interaction.

Another factor in choosing online lending over in-person may be the speed of the process. Online loans and other financial transactions can sometimes be completed faster than going into the physical location of a traditional lender. This may be important for people looking to borrow money online instantly.

Options to Think Twice About

Along with favorable options for lending that are available, there are some that may not bring about the best financial outcomes.

Credit Cards

At its core, a credit card is a short-term loan — specifically, a line of credit. If the account balance is paid in full before each month’s due date, it’s a no-interest loan. Financial drawbacks arise, however, when that balance is not paid in full each month, carrying over a balance due.

Credit card interest rates tend to be high, and they accrue on any unpaid balance, compounding what is owed in the next billing cycle. The average credit card annual percentage rate (APR) is currently 24.45% for new credit card offers. Even for existing customers, the APR is high, at an average of 20.68% currently. It’s easy to see how this can lead to a cycle of debt. Paying off a loan over time is probably more efficiently done with other financial tools.

Recommended: Personal Loan Calculator

Predatory Lenders

When people look for fast cash, there is probably someone out there who is willing to lend it to them — at a cost. If it seems like there is no other choice available, some people may take on a loan that can be difficult to pay off. Repeat borrowing is common with these types of loans.

•   Payday loans are short-term loans, typically to be paid off in the borrower’s next payday. Interest rates are extremely high, often 400% or more.

•   Title loans or pawn loans use a borrower’s vehicle or other item of value as collateral. The APR on a title loan can be as much as 300%, and lenders often charge additional fees.

💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

The Takeaway

Choosing a lender depends on different factors for different people. Traditional lenders, online lenders, alternative lenders — each can be a valid choice for different financial needs. With online lenders becoming more commonplace, with established reputations in the financial marketplace, looking at options among them might be a good choice.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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There are two basic types of credit: installment and revolving. An installment loan is a form of installment credit that is closed-ended and is repaid in fixed payments over a regular repayment schedule.

Some common types of installment loans are mortgages, auto loans, student loans, and personal loans. If you’re considering borrowing money, you may be wondering what an installment loan is and how it works. We’ll provide some insight that may help.

What Is an Installment Loan?

An installment loan is a lump sum of money borrowed and paid back over time. Each payment is referred to as an installment, hence the term installment loan.

In contrast, revolving credit like credit cards can be borrowed, repaid, and borrowed again up to the approved credit limit.

Installment loans can be secured with collateral or they can be unsecured. Some loans may have fees and penalties. The interest rate may fluctuate, depending on whether you choose a fixed or variable rate loan.

Recommended: 11 Types of Personal Loans & Their Differences

What Is an Example of an Installment Loan?

Installment loans can have multiple uses. These include auto loans, personal loans, mortgages, and student loans.

Auto Loans

Borrowers can take out auto loans for new and used vehicles. Monthly installments average around 72 months, but shorter loans may be available.

Loans with longer terms tend to have higher interest rates. It may seem like you’re paying less because the monthly payments may be lower, but you could end up paying more over the life of the loan.

Mortgages

Mortgages, or home loans, typically have terms ranging from 10 to 30 years with installments paid back monthly. Depending on your mortgage, you’ll either pay a fixed interest rate — it won’t change throughout your loan — or variable, which can fluctuate after a certain period of time.

Personal Loans

Personal loans are more flexible types of loans in that borrowers can use them for most purposes — examples include home repairs or debt consolidation. Many personal loans are unsecured, and interest rates will depend on your credit history and other factors.


💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.

Student Loans

Student loans help borrowers pay for their post-secondary education such as undergraduate and graduate tuition costs. They’re either federal or private, and terms and rates will depend on a variety of factors.

Some student loans have a grace period, a period after graduation during which you aren’t required to make payments. Depending on how the loan is structured, interest may not accrue. Not all student loans have a grace period, however, so it’s important to verify your repayment schedule before you finalize the loan.

Pros and Cons of Installment Loans

An installment loan may or may not be the best fit for your borrowing needs. Consider the advantages and disadvantages, so you understand what you’re agreeing to.

Pros of Installment Loans

Expense

Most installment loans allow borrowers to take out large amounts, helping them to cover large expenses. For instance, many borrowers can’t afford to buy a house with cash, so mortgages can provide a path to homeownership.

Regular Repayments

Installment loans tend to come with predictable payment schedules. If you take out a fixed-rate loan, your payment amount should be the same each month. Having that knowledge of when and how much you need to pay can make it easier to budget.

Plus, installment loans have a payment end date. As long as you keep making on-time payments, your loan will be paid off in a certain amount of time.

Taking a careful look at your budget to make sure you can afford the monthly payments is an important consideration.

Refinancing

You may be able to refinance your loan to a lower rate if you’ve improved your credit or if interest rates go down. Refinancing may shorten your loan repayment schedule or lower your monthly payments.

There are typically fees associated with refinancing a loan, which is another thing to consider when thinking about this option.

Cons of Installment Loans

Not Open-ended

Once you finalize the loan and receive the proceeds, you can’t borrow more money without taking out another loan. Revolving credit like credit cards allow borrowers to use funds continually — borrowing and repaying up to their credit limit.

Commitment

When you take out a loan, being committed to paying it down is essential. Since some installment loans can come with longer terms — think mortgages — it’s important to make sure your budget can handle the regular payment.

Charged Interest

Like other types of loans, you’ll need to pay interest on installment loans. The interest rate you’re approved for is dependent on factors such as your credit history, credit score, and others. Applicants who have a deep credit history and a credit score at the higher end of the range will most likely qualify for the most competitive rates. If you’re stuck with a higher rate because of your less-than-stellar credit, you could be making larger payments and paying more in interest.

Aside from interest, you may have to pay fees to take out an installment loan. There may also be prepayment penalties if you want to pay off your loan early.

Installment Loans and Credit Scores

How you use an installment loan can affect your credit score. If a lender reports your activity related to the loan, it could affect your score in two ways:

•   Applying for a loan: A lender may want to check your credit report when you apply for a loan, which may trigger a hard credit inquiry. Doing so could temporarily lower your credit score.

•   Paying back a loan: Lenders generally report your activity to the three major credit bureaus. If you make regular, on-time payments, this positive mark on your credit report could raise your credit score. The opposite can happen if you’re behind on or miss payments.

Getting an Installment Loan

Since taking out an installment loan is a big financial commitment, you may want to consider the following best practices:

•   Shopping around: Getting quotes from multiple lenders is a good way to compare personal loans to find one that offers the best rates and terms for your financial profile.

•   Pre-qualifying for loans: Getting pre-qualified allows you to see what rates and terms you may qualify for without it affecting your credit score.^*

•   Enhancing your borrowing profile: Check your credit report for any errors or discrepancies. Making corrections could have a positive effect on your credit score.

•   Adding a cosigner: If you can’t qualify for an installment loan on the merits of your own credit, you may consider asking someone you trust and who has good credit to be a cosigner.

💡 Quick Tip: In a climate where interest rates are rising, you’re likely better off with a fixed interest rate than a variable rate, even though the variable rate is initially lower. On the flip side, if rates are falling, you may be better off with a variable interest rate.

Alternatives to Installment Loans

Here are a few alternatives to consider:

•   Using a credit card: If you don’t need a large sum of money or don’t know how much you’ll need to borrow, a credit card can be a smart choice. Paying the entire balance by the due date means you won’t have to pay interest. Paying at least the minimum amount due each month will keep you from incurring a late fee, but you’ll still pay interest on any outstanding balance.

•   Borrowing from your next paycheck: Some apps let you receive an advance on your next paycheck, if you meet qualifications. You agree to pay the advance back when your next paycheck is deposited into your bank account.

•   Borrowing from friends or family: Asking to borrow money can be an uncomfortable conversation to have. However, it may be an option if you can’t qualify for or would rather not take out a bank loan. Having a written agreement outlining each party’s expectations and responsibilities is a good way to minimize miscommunication and hurt feelings.

Recommended: Family Loans: Guide to Borrowing & Lending Money to Family

The Takeaway

If you’re looking for a loan, an installment loan might fit your needs. Shopping around for an installment loan is a good way to find the best rates and terms for your unique financial situation and needs.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

What is the meaning of installment loan?

An installment loan is a type of loan where borrowers take out a lump sum of money and pay it back in installments. Loan amounts can range from hundreds to thousands of dollars, and terms range from a few months to a few years.

What is an example of an installment loan?

Examples of installment loans include auto loans, personal loans, mortgages, and student loans.

Are installment loans bad for credit?

Making your scheduled monthly payments on time could improve your credit score. On the flip side, late or missed payments can hurt your credit score.

What is the difference between a personal loan and an installment loan?

Personal loans are types of installment loans. Other types include student loans, mortgages, and auto loans.

Photo credit: iStock/Ridofranz

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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If you are grappling with debt, you are not alone. The average American, for instance, is currently carrying $7,951 in credit card debt. But that doesn’t mean you have to live saddled with owing money and being charged high interest rates.

There are ways to make debt payoff happen faster. Read on for three strategies that can help you repay what you owe ASAP.

1. Figuring Out Your Budget

The first step to solving any debt problem is to establish a budget. A budget is essentially a summary that compares and tracks your income and expenses for a period of time, typically one month. A budget also allows you to plan how much you will spend and save each month.

You’ll want to first gather all of your bank and credit card statements for the last three or more months. You can then use them to figure out your monthly income (after taxes) and also list all of your monthly expenses. (You can do this using pen and paper, a spreadsheet or a budgeting app.)

You may want to group expenses into categories (such as insurance, groceries, eating out, insurance), and also divide them into essential vs. nonessential spending. From here, you can total your average monthly income and average monthly spending, see how they line up, and then consider making some shifts in your spending.

You might consider the 50/30/20 budget as a simple way to reorganize your finances. This budget allocates 50% of your income for essentials, like rent and bills, 30% toward nonessentials or “wants”, and 20% for savings and debt repayment.

If you need to free up more money to put towards debt repayment, you may want to look at your nonessential spending to find ways to cut back, such as ditching your cable bill, cooking more and getting take-out less often, and canceling your gym membership and working out at home.

Decreasing discretionary spending tends to be the easiest way to generate a monthly surplus. That surplus can then be used to pay off your debt faster.

If you find that you’ve been spending more than you earn by using credit cards, you may also want to make a plan to stop using those cards while you go after lowering your outstanding debt.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

2. Choosing the Right Repayment Plan

Once your budget is set up, a great next step is to list all of your debt (with amounts owed) and in order of interest rate, and then come up with a manageable plan to pay them off.

Some options that can help you pay off debt faster include:

The Snowball Method

The snowball method is where you focus on paying off your debts in order from smallest balance owed to largest.

You can do this by paying the minimum on all your debt and then allocating any extra money you have to the debt with the smallest balance.

•   Once the smallest debt is paid off, you can take the money you were

•   putting toward that debt and funnel it toward your next smallest debt instead.

•   You then continue the process until all your debts are paid.

The key benefit of this method is that it allows you to experience a series of small successes at the beginning. This can give you more motivation to pay off the rest of your debt.

The Avalanche Method

Another effective debt elimination strategy is the avalanche method (also known as debt stacking). With this approach, you would pay off your accounts in order from the highest interest rate to the lowest.

•   You would make the minimum payment on all of your accounts, then put as much extra money as possible toward the account with the highest interest rate.

•   Once the debt with the highest interest is paid off, you can start paying as much as you can on the account with the next high interest rate.

•   You would continue the process until all your debts are paid.

Putting Extra Cash Toward Debt-Reduction

Once you have an emergency fund (that can cover three to six months of living expenses) in place, you may want to funnel any extra income you receive right into your repayment plan in order to pay off debts faster.

That extra might be a bonus you receive at work, a tax refund, any side hustle income, or cash earned from selling items you don’t need — all of this money could go directly toward your debt payoff.

Putting this money toward your debt, instead of saving it for a new car or spending it on a vacation, can help you pay off your debt quicker so you can eventually shift your financial focus to more fun goals.

Recommended: Understanding Purchase Interest Charges on a Credit Card

3. Looking Into Debt Consolidation

Another option you may want to consider is rolling multiple debts into one payment (ideally with a lower interest rate) through debt consolidation.

This can make your debt easier to manage (because you’ll only have one monthly bill) and less expensive overall. The less you have to pay in interest, the more money you can put towards reducing the underlying debt.

•   One way to consolidate debt is to get a 0% interest balance transfer credit card and then transfer all your debts onto this card. Typically, you will have six to 24 months of no interest during which time you can pay down your debt. Just read the fine print to be clear on what interest rate you may pay on new purchases and when the interest-free period ends.

•   Another option is to get an unsecured personal loan. In this case, you would use the money from the loan to pay off your debt, then pay back the loan in installments over a set term. Typically, these loans can offer a significantly lower interest rate than what credit cards charge, but shop around and carefully review your options before signing up.

The Takeaway

If you’re looking to pay off your debt faster, it’s a good idea to take a look at your spending and income, find some ways to reduce your non essential spending, and then funnel any money you free up towards your debt repayment plan.
By sticking with your budget and payoff plan, you may soon be taking the money that you were spending on interest and putting it into savings for the things you really want.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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Both personal loans and credit cards provide access to extra funds and can be used to consolidate debt. However, these two lending products work in very different ways.

A credit card credit is a type of revolving credit. You have access to a line of credit and your balance fluctuates with your spending. A personal loan, by contrast, provides a lump sum of money you pay back in regular installments over time. Generally, personal loans work better for large purchases, while credit cards are better for day-to-day spending, especially if you are able to pay off the balance in full each month.

Here’s a closer look at how credit cards and personal loans compare, their advantages and disadvantages, and when to choose one over the other.

Personal Loans, Defined

Personal loans are loans available through banks, credit unions, and online lenders that can be used for virtually any purpose. Some of the most common uses include debt consolidation, home improvements, and large purchases.

Lenders generally offer loans from $1,000 to $50,000, with repayment terms of two to seven years. You receive the loan proceeds in one lump sum and then repay the loan, plus interest, in regular monthly payments over the loan’s term.

Personal loans are typically unsecured, meaning you don’t have to provide collateral (an asset of value) to guarantee the loan. Instead, lenders look at factors like credit score, debt-to-income ratio, and cash flow when assessing a borrower’s application.

Unsecured personal loans typically come with fixed interest rates, which means your payments will be the same over the life of the loan. Some lenders offer variable rate personal loans, which means the rate, and your payments, can fluctuate depending on market conditions.

Personal loans generally work best when they are used to reach a specific, longer term financial goal. For example, you might use a personal loan to finance a home improvement project that increases the value of your home. Or, you might consider a debt consolidation loan to help you pay down high-interest credit card debt at a lower interest rate.

Key Differences: Credit Card vs Personal Loan

Both credit cards and personal loans offer a borrower access to funds that they promise to pay back later, and are both typically unsecured. However, there are some key differences that may have major financial ramifications for borrowers down the line.

Unlike a personal loan, a credit card is a form of revolving debt. Instead of getting a lump sum of money that you pay back over time, you get access to a credit line that you tap as needed. You can borrow what you need (up to your credit limit), and only pay interest on what you actually borrow.

Interest rates for personal loans are typically fixed for the life of the loan, whereas credit cards generally have variable interest rates. Credit cards also generally charge higher interest rates than personal loans, making it an expensive form of debt. However, you won’t owe any interest if you pay the balance in full each month.

Credit cards are also unique in that they can offer rewards and, in some cases, may come with a 0% introductory offer on purchases and/or balance transfers (though there is often a fee for a balance transfer).

Line of Credit vs Loan

A line of credit, such as a personal line of credit or home equity line of credit (HELOC), is a type of revolving credit. Similar to a credit card, you can draw from a line of credit and repay the funds during what’s referred to as the draw period. When the draw period ends, you’re no longer allowed to make withdrawals and would need to reapply to keep the line of credit open.

Loans, such as personal loans and home equity loans, have what’s called a non-revolving credit limit. This means the borrower has access to the funds only once, and then they make principal and interest payments until the debt is paid off.

Consolidating Debt? Personal Loan vs Credit Card

Using a new loan or credit credit card to pay off existing debt is known as debt consolidation, and it can potentially save you money in interest.

Two popular ways to consolidate debt are taking out an unsecured personal loan (often referred to as a debt or credit card consolidation loan) or opening a 0% interest balance transfer credit card. These two approaches have some similarities as well as key differences that can impact your financial wellness over time.

Using a Credit Card to Consolidate Debt

Credit card refinancing generally works by opening a new credit card with a high enough limit to cover whatever balance you already have. Some credit cards offer a 0% interest rate on a temporary, promotional basis — sometimes for 18 months or longer.

If you are able to transfer your credit card balance to a 0% balance transfer card and pay it off before the promotional period ends, it can be a great opportunity to save money on interest. However, if you don’t pay off the balance in that time frame, you’ll be charged the card’s regular interest rate, which could be as high (or possibly higher) than what you were paying before.

Another potential hitch is that credit cards with promotional 0% rate typically charge balance transfer fees, which can range from 3% to 5% of the amount being transferred. Before pulling the trigger on a transfer, consider whether the amount you’ll save on interest will be enough to make up for any transfer fee.

Using a Personal Loan to Consolidate Debt

Debt consolidation is a common reason why people take out personal loans. Credit card consolidation loans offer a fixed interest rate and provide a lump sum of money, which you would use to pay off your existing debt.

If you have solid credit, a personal loan for debt consolidation may come with a lower annual percentage rate (APR) than what you have on your current credit cards. For example, the average personal loan interest rate is 11.31% percent, while the average credit card interest rate is now 24.37%. That difference should allow you to pay the balance down faster and pay less interest in total.

Rolling multiple debts into one loan can also simplify your finances. Instead of keeping track of several payment due dates and minimum amounts due, you end up with one loan and one payment each month. This can make it less likely that you’ll miss a payment and have to pay a late fee or penalty.

Both 0% balance transfer cards and debt consolidation loans have benefits and drawbacks, though credit cards can be riskier than personal loans over the long term — even when they have a 0% promotional interest rate.

Is a Credit Card Ever a Good Option?

Credit cards can work well for smaller, day-to-day expenses that you can pay off, ideally, in full when you get your bill. Credit card companies only charge you interest if you carry a balance from month to month. Thus, if you pay your balance in full each month, you’re essentially getting an interest-free, short-term loan. If you have a rewards credit card, you can also rack up cash back or rewards points at the same time, for a win-win.

If you can qualify for a 0% balance transfer card, credit cards can also be a good way to consolidate high interest credit card debt, provided you don’t have to pay a high balance transfer fee and you can pay the card off before the higher interest rate kicks in.

With credit cards, however, discipline is key. It’s all too easy to charge more than you can pay off. If you do, credit cards can be an expensive way to borrow money. Generally, any rewards you can earn won’t make up for the interest you’ll owe. If all you pay is the minimum balance each month, you could be paying off that same balance for years — and that’s assuming you don’t put any more charges on the card.

When is a Personal Loan a Good Option?

Personal loans can be a good option for covering a large, one-off expense, such as a car repair, home improvement project, large purchase, or wedding. They can also be useful for consolidating high-interest debt into a single loan with a lower interest rate.

Personal loans usually offer a lower interest rate than credit cards. In addition, they offer steady, predictable payments until you pay the debt off. This predictability makes it easier to budget for your payments. Plus, you know exactly when you’ll be out of debt.

Because personal loans are usually not secured by collateral, however, the lender is taking a greater risk and will most likely charge a higher interest rate compared to a secured loan. Just how high your rate will be can depend on a number of factors, including your credit score and debt-to-income ratio.

The Takeaway

When comparing personal loans vs. credit cards, keep in mind that personal loans usually have lower interest rates (unless you have poor credit) than credit cards, making it a better choice if you need a few years to pay off the debt. Credit cards, on the other hand, can be a better option for day-to-day purchases that you can pay off relatively quickly.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

If you don’t have a bank account, either because you prefer to pay in cash or due to a poor banking history, you will likely run into a few obstacles when trying to get any type of loan, including a personal loan.

While it’s not impossible to get a loan if you don’t have a bank account, it can be difficult to get approved, will likely cost more in interest and fees, and may require collateral to guarantee the loan. However, if you need money fast, there are options available. Here’s a look at how to get loans without a bank account.

Is It Hard To Get a Loan With No Bank Account?

Generally, yes. Not having a bank account — in particular, a checking account — can make it difficult to qualify for a loan.

When you apply for a personal loan (or any other type of loan) the lender will typically ask for your bank account information and the last one to three month’s worth of bank statements. This helps them verify your income and gives them an idea of whether you have the cash to keep up with your loan payments.

However, if a financial emergency arises and you need money quickly, there may be loan options available that do not require a bank account. The hitch is that these loan products typically come with high interest rates, multiple fees, and short repayment terms.

Why Is Getting a Loan With No Bank Account Hard?

When a lender assesses an applicant, they consider how risky the loan might be to their own business. In other words, they want to predict how likely it is that the borrower will be able to pay the loan back. When a loan applicant doesn’t have a bank account, the lender has more difficulty assessing that person’s income or cash flow.

There is also a logistical issue: Where should the lender send the loan proceeds? Typically, the money is sent to the borrower’s bank account. But if the borrower doesn’t have a bank account, there may be some question of where the money will be deposited and how it will be accessed, as well as how loan payments will be made.

Can You Get a Loan With Bad Credit and No Bank Account?

It’s possible but it might not may not be a good idea, since your options will be limited and expensive.

To assess your risk as a borrower, lenders will not only look at your banking history but also your credit history and scores. Your credit reports contain a record of how you’ve handled credit accounts in the past, including whether you pay your bills on time, what types of credit you use, how much debt you carry, and any delinquencies and collections you’ve experienced. This information is used to calculate your credit scores. Borrower’s with excellent credit are not only more likely to qualify for a loan, but also get the best rates and terms.

If you have poor credit and no bank account, you will likely be seen as high risk to lenders. If you’re applying for an unsecured loan (meaning no collateral is required), you may not be approved.

You might, however, be eligible for a secured loan that’s backed by collateral, such as a car or other asset of value that you own. If you are unable to repay the loan as promised, the lender has the right to take that collateral as payment on the loan.

Pros and Cons of Loans With No Bank Account

If you’re looking for a loan with no bank account, you’ll want to carefully consider the pros and cons.

Pros of No Bank Account Loans

•  Fast access to cash No bank account loans, such as payday and title loans, typically provide a lump sum of cash right away.

•  No credit check Some no bank account loans won’t take your credit history or score into account, allowing borrowers with bad credit or who haven’t yet established any credit to access funds.

Cons of No Bank Account Loans

•  High costs Lenders who consider applicants with no bank account generally make up for risk by charging extremely high interest rates and fees.

•  Short repayment terms Unlike other types of personal loans, which usually give you years for repayment, no bank account loans (such as title loans and payday loans) often need to be paid in 30 days or less.

•  Can lead to vicious debt cycle Due to the short repayment terms for no bank accounts loans, borrowers often need to roll the loan over into a new short-term loan, leading to a cycle of debt.

5 No Bank Account Loan Options

Even if you don’t have a bank account, you may be able to access a loan. Here’s a look at some potential options.

1. Borrowing Money From Loved Ones

If you’re having a hard time financially, your loved ones may be able to step in. Whether you ask for money from friends or family members, it’s a good idea to have clear, written loan terms, and maybe even have the loan agreement notarized so there’s no confusion. Make sure expectations are clear for each party.

•   Does the loan have interest attached?

•   Are you expected to pay back the loan or is it a gift?

•   Are there in-kind options for paying back the loan, such as babysitting or tutoring hours?

•   What would happen if you were not able to pay back the loan?

Answering these questions can help create clear expectations and lessen the chance of a misunderstanding that could strain your relationship.

2. Payday Loan

A payday loan is usually for a small amount (often $500 or less) for a short period of time, typically until the borrower’s next paycheck. While it can be a source of quick cash, payday loans are problematic, given their high annual percentage rates (APRs).

Some states may cap the maximum allowable APR, but many payday loans charge fees of $10 to $30 for every $100 borrowed. A fee of $15 per $100 equates to an APR of almost 400%, which is significantly higher than the APR of a typical personal loan. If you can’t pay back your payday loan quickly, the fees can add up fast and make your existing financial problems snowball.

Risks of Payday Loans

The drawbacks of a payday loan may outweigh the benefits, and include:

•  High fees Lenders charge exorbitant fees and APRs for payday loans just in case the loan can’t be paid off.

•  Debt spiral If you can’t repay your payday loan on time, you’ll have to roll it over into a new loan and end up with even more fees and interest charges. This makes the loan even harder to pay back and can lead to a dangerous debt spiral.

•  Small loan amounts If you need a large sum of cash, a payday loan likely won’t offer enough, since they are usually $500 or less.

3. Title Loans

If you own your vehicle, you may be eligible for a title loan. Also called an auto title loan or vehicle title loan, this type of loan uses your vehicle as collateral. The lender holds your vehicle title in exchange for the loan. You then may be able to borrow a portion (often 25% to 50%) of the vehicle’s current value. As with payday loans, interest can be exceptionally high — as much as 300% — and there may be additional fees. If you are unable to pay back the loan, the lender has the right to take ownership of your vehicle. This can be a high-stakes situation for borrowers who depend on their car to go to work and school.

4. Pawn Shop Loan

If you have a valuable piece of jewelry, an antique, or other collectible to use as collateral, you might be able to get a pawn shop loan. The pawnbroker will assess the value of the item and provide a loan based on a certain percentage of its value. The loan terms will include interest. If the loan isn’t paid back according to the terms, the pawnshop then owns your item and can sell it.

5. Cash Advance

A cash advance is a short-term loan typically offered by your credit card issuer. A credit card cash advance allows you to borrow a certain amount of money against your card’s line of credit. You can usually get the cash at an ATM or through a bank teller.

A cash advance is a way to access quick cash but the interest rate will likely be higher than your card’s standard purchase APR, and higher than interest rates on personal loans. In addition, you typically need to pay a hefty cash advance fee.

Loan Options With a Bank Account

Before looking into loan options with no bank account, you may want to consider opening a checking account. If you’ve had past checking account errors or misuse, look into a second chance checking account. These accounts are designed to help people who have negative banking history get back in the door.

Borrowers with bank accounts generally have more — and better — loan options available to them. If you are able to open a checking account, here are types of loans you may be able to access.

Personal Loans

A personal loan is a lump sum of money borrowed from a bank, credit union, or online lender that you pay back in regular installments over time. Loan amounts can be anywhere from $1,000 to $50,000 and repayment terms range from two to seven years. Personal loans have fixed interest rates, so the monthly payment is the same for the life of the loan.

Personal loans are typically unsecured, meaning they’re not backed by collateral. Instead, lenders look at factors like credit score, debt-to-income ratio, and cash flow when assessing a borrower’s application.

You can generally use a personal loan for almost any purpose, including debt consolidation, home improvement projects, medical bills, emergencies, and refinancing an existing loan.

Auto Loan

An auto loan is a loan that is used specifically to purchase a vehicle. They are available through banks, credit unions, and online lenders. Typically, auto loans are secured loans, which means the vehicle to be used as collateral for the loan.

When you take out an auto loan, the proceeds go to the vehicle’s seller to cover the cost of the vehicle. You then make monthly payments to the lender for a set period of time, which might be anywhere from three to eight years. The lender owns the car and holds the title until you pay off the loan. If you fail to keep up with payments, the lender can repossess the vehicle.

Student Loans

A student (or education) loan is a sum of money borrowed to finance college expenses, including tuition, supplies, and living expenses. Payments are often deferred while students are in school and, depending on the lender, for an additional six-month period after earning a degree.

Student loans are available from the government as well as through private lenders. Federal loans may have lower interest rates, and some also offer subsidized interest (meaning the government pays the interest on the loan while a student is in college). Private student loans are generally available in higher amounts.

The Takeaway

Getting a personal loan with no bank account may be possible but can be both costly and risky. Before committing to a lender that charges high interest and fees or requires collateral, you may want to explore opening a bank account.

Once you have a checking account, you may be able to access traditional personal loans with more attractive rates and terms. You might also want to consider a SoFi Personal Loan. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Can you get a loan without a bank account?

It’s possible, but you will likely be limited to loans with sky-high rates and short repayment terms, such as payday loans, pawn shop loans, and title loans. The lender may also require collateral (an asset you own, such as a car) that they can seize if you don’t repay the loan.

Can you get a loan with your SSN?

Having a Social Security number (SSN) can make getting a loan easier, since a lender can use it to retrieve information they need to process the loan. In addition to an SSN card, you also typically need to provide:

•  An additional proof of identity (such as a birth certificate, driver’s license, passport, or certificate of citizenship)

•  Proof of income (e.g., pay stubs, tax returns, and bank statements)

•  Proof of address (such as a utility bill, rental agreement, bank/credit card statement)

Can you get a cash advance without a bank account?

It’s possible, but it may be hard to find a lender who is willing to work with you. Your best option might be a credit card cash advance, which involves withdrawing cash from an ATM or bank using your credit card account. Just keep in mind that credit card advances generally come with high interest rates and fees.

Another option for fast cash might be a payday or title loan. Some lenders who offer payday and title loans might consider applicants who don’t have bank accounts but, to offset the risk, may require collateral (such as a car) they can take if you fail to repay the loan.

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