Tower Loan Blog

How to Borrow Money: An Easy-to-Follow Guide

Borrow Money

Almost everyone needs to borrow money at some point in their adult life. You may be in a tight spot and need some quick cash, or you may require a more significant amount for undertakings like buying a home.

Luckily, there are numerous ways to borrow money. However, not all loans are created equal. Some are harder to qualify for, while others have higher interest rates. Ultimately, whatever works for you depends on your situation. This is why it’s important to consider multiple channels.

But where do you start? It can be overwhelming to do your research with all the options available. If you’re asking, “Where can I borrow money?” you’re in the right place. Here’s an in-depth guide on lending sources and loan types to help you make the right choice.

Where Can I Borrow Money? 6 Places That Lend Cash

There are as many institutions that lend money as there are loan options. They range from the more traditional financial institutions like banks and financing companies to new-age creations like peer-to-peer (P2P) lending and Neobanks, which loan money online.

1. Banks

Your local bank is probably your first recourse when you need to borrow money. Though many don’t see them as such, lending is actually their primary way of making money. They do this by borrowing from the money customers deposit into their accounts and lending it through various products like personal loans, mortgages, and credit cards.

Borrowing from your bank is a convenient option and can be easier if you are a long-term customer. However, they tend to have higher interest rates and stringent borrowing terms, and thus may not be the best way to get a loan if you’re looking for the cheapest option.

Also, remember that most banks require you to have an excellent credit score to approve your loan request.

2. Credit Unions

Credit unions are financial cooperatives operated on a not-for-profit basis and controlled by their members. They generally provide financial services similar to banks, such as deposit accounts and money lending, but usually offer lower interest rates and fees than a bank because they are nonprofit. Federal credit unions also cap annual percentage rates (APRs) at 18% for most loans. On top of lower interest rates, loans from credit unions usually have fewer fees and paperwork than bank loans.

Borrowing from a credit union is easier if you don’t have a stellar credit score. However, one must meet the union’s eligibility requirements to become a member and have access to their credit services.

3. 401(K) Plans

Most workplace-based retirement accounts, such as a 401(k) plan, 403(b), or 457 plan, allow employees to borrow up to 50% of the total amount vested in the account to a limit of $50,000 for up to five years.

Borrowing from your 401(k) is different from a permanent withdrawal, which incurs taxes and a 10% penalty if you’re below 59.5 years old. A 401(k) loan only incurs interest payments since you’re taking out the funds temporarily.

4. Peer-to-Peer Lending (P2P)

Also known as social lending, P2P lending is a relatively new concept where people borrow and lend money directly from each other without an intermediary like a bank or broker.

The transaction takes online on a peer-to-peer platform, where borrowers display their profiles and investors vet them to determine creditworthiness. The investors are simply individuals who are willing to lend money for an agreed interest rate.

Though P2P lending is easier in that it does not involve an intermediary, it is riskier than borrowing from an official lending institution.

5. Online Lenders

Digital loans are becoming increasingly mainstream that today even traditional lenders are offering customers the option to borrow money online. Online loans come with fewer pre-qualification procedures and a more streamlined process than other types of credit from traditional institutions — you can apply for a loan in as little as 10 minutes with minimal paperwork.

The most common product offered by online lenders is the personal loan; however, there are a variety of other options available, including online home refinancing.

6. Friends and Family

Approaching friends and family can be a simple way to borrow cash and is one of the best options for people with a poor credit score. Family loans often come with little to no terms and have much lower interest rates than borrowing from institutions. However, the lack of a contract may result in disputes over repayment. Also, borrowing and repaying a family loan does not build your credit in any way. 

5 Ways to Borrow Money

How can you borrow money that suits your position and needs? Your best option depends on various factors such as your creditworthiness, whether you’re willing to pledge any collateral, the amount you need to borrow, and a host of other factors. It’s important to familiarize yourself with the loan products available so that you can weigh them against these factors.

1. Personal Loans

If you’re looking to borrow money without having to specify your need, a personal loan is a great option. You will receive the money in a lump sum and is typically required to be paid back in monthly installments with interest. People take out personal loans for everything from consolidating debt and covering unplanned financial expenses to making home repairs and traveling. Banks, credit unions, and peer-to-peer lending platforms are some places you can borrow cash of this kind.

But while a personal loan may seem like a great option, it is not the best for everyone.


  • Personal loans are flexible and thus great for those expenses you can’t pay out of pocket. It’s one of the best credit options for people with room in their budget to cover the monthly payments.
  • Personal loans are generally unsecured, meaning they do not require you to pledge collateral like your house or car in case of a default. Financial hardship can strike at any time. An unsecured loan gives you more peace of mind that your assets are not immediately at risk.
  • Most personal loans have fixed interest rates, meaning you pay the same monthly amount you initially agreed to for the entire loan duration.


  • Unsecured credit comes with higher interest rates than secured loans because lenders do not have a fallback if you default. Negotiating a personal loan with relatively low interest is possible, but the most favorable terms are generally reserved for people with excellent credit.
  • It’s hard to get approved for a personal loan if you have a less-than-perfect credit score. Additionally, people with bad credit are often subject to a very high-interest rate resulting in a prohibitively expensive loan.
  • The flexibility of a personal loan may tempt people to borrow irresponsibly, landing them in an even worse financial position than they were in to begin with.

2. Home Equity Loans and Home Equity Lines of Credit (HELOCs)

These are loans that are secured by a borrower’s home. The amount you can borrow is a percentage based on your home’s equity — usually up to 85%. Your home equity is the difference between what you owe on your mortgage and your home’s current market value. It increases as you pay down your mortgage, or even if the value of your home increases.

A home equity loan is different from a HELOC in that it gives the borrower a lump sum upfront which is paid back in fixed installments over the duration of the loan. They also have fixed interest rates. On the other hand, HELOCs are revolving credit lines that allow the homeowner to borrow from their equity as needed up to a pre-set credit limit. The payments are not fixed, and neither is the interest rate.

Consider the following pointers if you are considering taking out a loan on your home:


  • Both loans allow homeowners to borrow for various purposes, such as making home improvements or consolidating debt.
  • Because they are secured using your home as collateral, home equity loans and HELOCs usually have better interest terms than unsecured options such as personal loans or credit cards.
  • Home equity loans are paid back in monthly fixed payments, making it easier to budget.
  • HELOCs allow you the flexibility to choose how much or how little you need to borrow. You can borrow more money for an emergency without reapplying for another loan.
  • Variable interest rates on HELOCs mean your rates and payments could reduce as your credit improves. 


  • Change in payments for HELOCs can make it harder to budget.
  • A revolving line of credit is revocable — your lender could reduce it or close it altogether if your financial situation changes or your home’s value decreases.
  • Taking out a loan using your equity as collateral could put you at risk of losing your home to foreclosure if you don’t pay it back.

3. Credit Cards

A credit card is one of the best and most readily available options for short-term debt. Most people use them when they need to buy something or pay a bill but don’t have the money at hand. However, most credit cards also have the option of accessing actual funds through a cash advance.

Credit cards can be a good source of emergency funds for those who intend to repay the loan amount within a short period. But they can also be a source of undue hardship if you are not aware of all the costs their associated costs.


  • Credit card advances are an easy way to get money quickly. Since you already have the card, you don’t need to go through a loan application process or a credit check. This also means no application fees.
  • The credit card provider only charges interest on what you have used or withdrawn, not the total credit limit.
  • You can avoid interest fees if you choose a 0% introductory rate card or pay off your balance every month. A 0% APR credit card can be one of the cheapest ways to borrow money.


  • Unlike with purchases, fees are accrued when you withdraw cash from your credit card. This is in addition to the monthly interest. Always double-check that your 0% APR period applies to cash advances as well.
  • Credit cards often charge exorbitant interest rates if a balance is carried over.
  • Credit card companies tend to loan relatively small amounts. Thus, this line of credit is not suitable for making big purchases.
  • Though a 0% APR credit card is one of the cheapest ways to borrow money, it is usually only given to people with excellent credit.
  • Racking up credit card debt can impact your credit score negatively, thus reducing your chances of getting loans from other lenders.

4. 401(k) Loan

As mentioned before, a 401(k) loan is basically borrowing money from your future self as it allows you to borrow against your retirement savings. One of the biggest benefits of borrowing a 401(k) loan is that the interest you pay goes back into your savings. But as incredible as they may seem, there are still things to consider before borrowing from your 401(k).


  • You don’t have to go through a credit check to borrow from your 401(k).
  • You can borrow up to 50% of your balance and use the funds in any way that your plan permits.
  • A 401(k) loan is tax-free, and interest rates tend to be relatively low. There are also no application fees involved.
  • Defaulting on your payments does not affect your credit score, as payments are not shown on your credit report.


  • If you fail to repay the full loan amount within the tenure period, it is treated as an early withdrawal, and you’ll be fined a 10% penalty fee and required to pay taxes.
  • Removing money from your 401(k) means you lose out on the investment returns of that amount.
  • Most plans prohibit borrowers from making additional contributions until they have paid off their loan.
  • You could be forced to repay the loan in full before your next federal tax return is due if you leave your job before you pay it off.

5. Short-term High APR Loans

Short-term high APR loans are an option to consider if you have a financial emergency but have no other alternatives for accessing quick cash. They are small loans of about $500 or less, given by lenders online or at loan storefronts. These loans are short-term loans that must be repaid by the next pay period after borrowing.


  • They are a quick way of accessing emergency cash.
  • One does not need good credit to get approved.


  • Short-term high APR loans have an extremely high-interest rate. According to the Consumer Financial Protection Bureau, a common fee is $15 per $100 which is an APR of nearly 400%. Other lenders charge an APR of up to 792%!
  • An extension of the due date leads to even more fees on the original amount owed, which can trap borrowers in a cycle of debt.

Borrowing Loan Money Online: What Are the Benefits?

Online loans are here to save the day if you’re looking for a quick way to borrow money. The fact that you can make a loan application from anywhere as long as you have an internet connection offers an unparalleled level of convenience. You can access the money you need without having to travel to an office or take time off work.

Many online lenders understand that customers turning to online loans need money fast and easy, so they ensure the application and prequalification process is as streamlined as possible. It’s possible to get a preapproval or prequalification with an online lender to get an estimate of the loan amount, interest rates, and terms. Ready access to this information is a big plus, as you can quickly review and compare the loans to find the best option. Those with bad credit would do well to have the opportunity to find the best kind of loan for them, given their unique credit history.

Another advantage of online loans is that some lenders can offer great rates and terms by foregoing the costs associated with running retail locations. You could save money by borrowing online as opposed to borrowing from a traditional institution. However, this largely depends on whether you are applying for an unsecured versus a secured loan.

How to Borrow Money: Next Steps

You can tell from the options above that there are multiple options to borrow money for various needs. However, always remember that borrowing money should be a last resort, not something you should do because the option is available.

Some pointers to help you borrow money the smart way:

  • Only borrow money that you can comfortably pay back, whether in fixed or variable monthly installments.
  • Ensure you have a budget in place to accommodate the repayment installments. It’s easy to carry on like you used to and forget about the additional strain on your finances.
  • On top of shopping around for the best rates, always do your due diligence on the lenders. You can find reviews and comparisons online.
  • Always check whether the creditor will perform a hard credit check before approving your loan, as it will affect your credit score.

Get Easy, Straightforward Loans

If you’re thinking, “I need to borrow money quickly, and from a provider I can trust,” you’re in the right place. We have been helping customers since 1936 and are committed to taking the worry out of obtaining credit. Tower Loan is committed to taking the worry out of securing credit for our customers.

We have a range of online loans to choose from, all with more convenient and less challenging repayment options. Start your application today.