4 Good Alternatives to High-Cost Loans

Case in point: You will need money to afford a loan. But it doesn’t mean it should come with very high interest. A loan should benefit both the lender and the borrower.

In applying for a loan, it’s important to manage your processing fees and interest rate. You can prevent such issues by being selective and prudent about the types of loans you will apply for.

You can also look for less-expensive options to get the funds you need, especially if you’re facing a high-interest-rate debt. Reducing your borrowing costs will also mean that each payment will lessen ​your debt burden.

Take your cue from the following alternatives.

Personal Loans

Personal loans are traditional loans from a credit union, a bank, or online lenders. Such loans are more affordable than title loans, payday loans, and credit cards.

Personal loans such as those from Credit Ninja Financing also have a low-interest rate, which often remains within the life cycle of the loan. Here are the other advantages of personal loans.

Personal loans Have No Surprises

Personal loans are straightforward and usually don’t have “teaser rates.” That said, the borrower will not be surprised by unforeseen increases in payment.

Also, the processing fees for a personal loan is expected to be nonexistent or low. For instance, if you use a credit union or bank, all of your costs will be included in the interest rate that you’ll need to pay.

How Payments Work

For a personal loan, you will borrow funds you need to pay all of your other obligations in one single payment (lump-sum). You will make regular “installment” payments every month until you settle the loan for, say, three to a five-year term.

For every monthly payment, part of it will be allotted to minimizing the loan balance, and the rest goes towards the interest cost. This process is called amortization, and it will be easy to comprehend and foresee it with online calculators.

Settle Your Debt Early

If you come into some money, you can use it to pay off the loan earlier to avoid penalties.

How to Get Approved

You will need a sufficient income for repayment and decent credit to qualify for a personal loan. But good thing, you don’t need to pledge collateral or a guarantee to secure the loan.

Personal loans are sometimes called “signature” loans because your pledge to repay, along with your income and credit, is all you need for qualification.

P2P (Person-to-Person) Loans

A P2P loan is a subset of personal loan. You can try borrowing from other individuals instead of borrowing from a credit union or bank.

These individuals could be your family, friends, or strangers who are eager to lend money through P2P platforms.

How to Get Approved

P2P lenders, when compared to banks, are more willing to approve you a borrower with irregular income or less-than-perfect credit. These lenders will also use alternative methods to assess your creditworthiness.

For instance, they may consider your rental payment history or your college degree as factors of your creditworthiness. But then again, it will only make sense to borrow if you’re certain that you can repay the loan.

Informal Loans

Your finances might not matter, but it’s still wise to protect your lender and your relationships, especially with family and friends.

Secure large loans with a lien in case something happens and put everything in writing, so there are no surprises.

Balance Transfers

Through taking advantage of a balance transfer, you might be able to borrow at low “teaser” rates, provided that you have a good credit score.

For balance transfers, you’ll need to open a new credit card account. Another option is to acquire convenience checks from current accounts that permit you to borrow money for zero interest APR (Annual Percentage Rate) for six months or so.

Further, balance transfers will work just fine if you know that a loan is going to be short-lived. However, it’s difficult to predict the future, and you might end up chained with that loan past the promotional timeframe.

If it happens, your “free money” will become a high-interest-rate debt. Hence, pay attention to fees that can wipe out all the benefits, and use the balance transfer offers wisely.

Home Equity

If you’re a homeowner and have plenty of equity in store, you can apply for a loan against your home. Typically, second mortgages have relatively low-interest rates than credit cards and other consumer loans. But, just like any other loans, this strategy is far from perfect.

You risk losing your home once you apply for home equity loans. Your lender might force you to leave and sell your home in case you fail to keep up with the payments. It’s not a risk worth taking.

Sometimes, unsecured loans are better than the options given above. Further, you will have to pay closing costs to acquire a home equity loan. These costs can potentially wipe out any savings you get from using your home as a guarantee.


In the wake of the Great Recession, the market for alternative loans has rapidly grown despite some qualms from consumer advocates. If you have a hard time applying for a loan to a credit union or bank, these alternatives can help if you’re responsible with finances and don’t have the chance to build a robust credit history yet.