While personal loans can be a lifesaver in the right situation, they are not the only option for funding your financial goals. Several clever alternatives to personal loans may offer more flexible terms, lower interest rates, or other benefits unavailable through personal loans.  

Take a look at the personal loan alternatives below to see if one might be a better fit for your circumstances. Then, when you’re ready to move forward with whichever solution you choose, you can turn to your local credit union for the best rates and fees — on all types of loans! 

Clever alternatives to personal loans

Personal loans may have strings attached, like interest rates or missed payment penalties steeper than alternative funding options. Consider the following personal loan alternatives, which can help fund unexpected expenses, business ventures, significant events, or home improvement projects. 

Utilizing a 0% APR credit card

APR is the annual percentage rate of your yearly interest. A 0% APR credit card has no interest, often for a set promotional period. This could be one of the best personal loan alternatives if you want to make a few big purchases or need immediate cash for living expenses. It’s also ideal for consolidating other high-interest debts into something more manageable, although you may incur a balance transfer fee. 

While 0% APR credit cards sound like a dream come true, the no-interest is just a temporary perk that expires after a year or two. You’ll still have to pay for the consequences of missing payments, which can negatively affect your credit score or raise your debt after the no-interest period. 

On the other hand, it’s still less of a commitment than personal loans, which tend to lock you into monthly payments for years. You can even use them to improve your credit score if you successfully make monthly payments. 

Borrowing from a retirement account

Most employer-sponsored retirement plans allow you the option to borrow money from the account, repaid with interest. This is true of most 401(k) and 403(b) plans but not for most individual retirement accounts (IRAs). 

Borrowing from the IRS has its perks. For one thing, it’s easier to get accepted than with personal loans from traditional banks. Sometimes, most of the interest you pay goes back into your retirement plan, with the IRS taking only a small cut for administration fees. 

The downside of borrowing from your retirement funds — on top of the risk of losing them — is that you lose your tax-deferred status on these accounts, so you’ll have to pay additional taxes in addition to interest rates. You can only take out up to $50,000, so if you need a more significant sum, you’ll have to find other alternatives to personal loans. 

Also, be sure to check the interest rates of other financial institutions, especially your local credit union. Chances are, you may find a more agreeable personal loan alternative elsewhere. 

Peer-to-peer lending platforms

Peer-to-peer lending, or P2P lending, is when loans are arranged directly between the borrower and the lender through an online service. Borrowers and lenders can negotiate their terms, while the service itself takes a small fee in exchange for vetting participants, providing credit checks, customer service, and general company maintenance. 

P2P lending foregoes banks altogether, but that doesn’t necessarily mean lower interest rates. The nature of peer-to-peer lending means that the loans are unsecured, and the lender assumes most of the risk. As such, lenders may be even more cautious about whom they loan to or charge higher interest rates to mitigate the risks. 

While P2P lending is legal, it is largely unregulated, so you participate at your own risk. Above all, make sure the platform you use for P2P lending is legitimate, as the industry is open to scammers.

Home equity line of credit (HELOC)

A home equity line of credit, known as a HELOC, is a type of second mortgage that allows you to use your home's value as collateral for a loan. Borrowers can receive a lump sum based on the house's value as credit, which they can spend and repay over time. 

The appeal of HELOCs is that their interest rates are usually lower than those of credit cards, which is why they're one of the smartest alternatives to personal loans. The property's equity may be underutilized, so HELOCs are an excellent way to exploit untapped assets. 

The downside is, of course, the risk of losing your home. With such a large lump sum at their disposal, many people overspend and end up racking up more debt than they can afford to pay off, which could ultimately result in forfeiture of the property. 

Side hustles and gig economy jobs

If you need money, you can always get it the old-fashioned way: working more. Moonlighting or working an additional job may require considerable time and effort; however, you can't beat that 0% interest rate. 

Working multiple jobs can be better than it sounds. For starters, your additional job could be a passion you've always wanted to pursue, and it could be the perfect opportunity to develop skills and experience that will continue to pay off. Moreover, finding an additional job with a flexible schedule won't interfere too much with your life. 

Of course, you need to make sure you don't overextend yourself. Simultaneously holding down multiple intensive jobs will drain you physically and mentally, to say nothing of its impact on your relationships. Additionally, your contract at your primary job may prohibit working elsewhere, which means you'll have to find other alternatives to personal loans.

Negotiating with creditors

If you're interested in personal loan alternatives to help with your existing debt, you may be able to negotiate with creditors for better terms. 

Typically, negotiating with creditors works best if you have some savings to offer. Debtors will be more interested in hearing what you have to say if you're offering a lump-sum payment, although many will also entertain monthly payments. So your first step is saving up cash on the side — generally, aim for about half of your debt. 

Unfortunately, this is one of the clever alternatives to personal loans that only apply to some. You won't have much negotiation leverage if you don't have much savings. On the bright side, you can still be honest and direct with creditors about your situation, and perhaps they'll be open to renegotiating your terms. 

Further resources on clever alternatives to personal loans

Looking for more clever alternatives to personal loans? Check out these additional resources for more options and financial advice: 

• Know how to negotiate. Here are three steps for negotiating better terms with creditors and debt collectors if you want a personal loan to consolidate debts. 

• Look into government loans. The federal government offers a searchable database of available federal loans, ranging from housing and business to education and veteran loans. 

• Identify personal loan scams. One reason people look for personal loan alternatives is because they’re afraid of getting scammed. Look out for these common loan scams and learn how to spot them. 

Choose the credit union experience

Whether you choose one of these clever alternatives to personal loans or decide a traditional loan is best for you, chances are a credit union will give you the most beneficial terms and rates. Why? Because not-for-profit credit unions are run by banking members just like you. 

See for yourself by comparing the rates and fees of credit unions to your local bank.

Did you know?

Credit unions offer lower rates and fees on personal loans than for-profit banking institutions,  where a board of directors determines terms and policies intending to maximize profits. At not-for-profit credit unions, the people who decide the policies are the banking members, resulting in lower rates and fees.