A Beginner’s Guide to Borrowing Money

Whether you’re buying a car, making home repairs, or just trying to stay on top of bills, you’ll likely have to borrow funds at some point in your life. Understanding the tools you have at your disposal – including online loans, borrowing from friends or family, credit cards, and bank loans – makes borrowing money for the first time easier to navigate. If you find yourself in need of a loan for the first time, read on to learn more about how to borrow money and manage your debts.  

When Do You Need to Borrow Money?

Borrowing money is a great way to get quick cash to supplement your budget, but it’s smart to understand when getting a loan is the right choice for you. People may borrow money for several reasons. They might have an unexpected expense or change in income and need cash quickly or just need some extra funds to cover essential day-to-day expenses. Another reason why someone may get a loan is that they want to pay for an expensive purchase like a car over several payments instead of all at once. Before deciding whether to borrow money, consider whether you have the financial resources to make the required repayments and whether you’ve already ruled out other options like dipping into your savings.    

Ways to Borrow Money  

Some types of loans are better suited to small, one-time expenses. Others are designed to help you make major purchases, like cars, homes, or college tuition. Comparing your options could help you secure the best loan for your situation.  

Getting an Online Loan

You can receive funds with little hassle through an online loan. Many online lenders offer quick and easy application and approval processes. They often require a credit check, government-issued ID, and proof of income. You can apply in just a few minutes and, if you’re eligible, receive approval and the money you need that same day.    

Borrowing From Someone You Know   

Borrowing from a trusted colleague, friend, or family member could help you avoid the time-consuming process of applying for a traditional loan.

 You may also be able to establish more flexible repayment terms than you’d have with a loan product. Plus, peer-to-peer loans won’t put your credit score at risk. However, your relationship may suffer if you don’t repay the loan, so be sure to pay back what you owe.

Using a Credit Card   

Credit cards are popular for a few reasons. You could borrow money as needed (within your credit limit), and only your monthly balance accrues interest. Cardholders may also benefit from perks like cashback, airline miles, or 0% APR introductory periods. However, credit cards often require a credit history, and you might not qualify if you’re borrowing money for the first time.

Getting a Bank Loan

While online loans offer a convenient alternative, people have traditionally applied for personal loans from banks and credit unions. You don’t usually have to be a member of a bank to borrow from them, but membership may afford you access to better rates or higher maximums. A personal loan from the bank could cover almost anything, including medical bills, travel, home repairs, or even a wedding.  

How to Manage Your Debts  

Before you get a loan, it’s important to be aware of the repayment terms so you can stay on top of payments and avoid late fees or penalties.

When available and feasible for your budget, setting up automatic payments could help you easily pay on time each month. It’s also helpful to develop a monthly budget that incorporates your payments so you can plan ahead and save for necessities or emergencies. Communicating with your lender right away can help you create a new plan if you’re struggling to make payments.  

The Bottom Line

Taking out a loan is a significant financial decision that you should approach with care. Make sure you can repay loans on time. Online loans, bank loans, credit cards, or borrowing from peers could all help you meet your financial needs. Ultimately, it’s essential to understand your options so that you’re empowered to make informed financial decisions.