Personal Loan Alternatives

Personal Loan Alternatives

Written by Veronica Ott
Fact-checked by Caitlin Wood
Last Updated May 4, 2021

Personal loans are a financing solution that can be used for virtually any purpose. However, the repayment structure, interest, and other terms may not be favourable to every borrower. In these situations, the borrower might consider alternatives to using personal loans. Thankfully, there are many options out there that could suit your personal finances better. 

Why Would You Want To Use An Alternative? 

Personal loans are not always the most ideal form of financing. If you have poor credit, it can be challenging to qualify for a personal loan, particularly if it’s unsecured. Even if you do qualify, the interest rates and terms may not be favourable. Lastly, personal loans usually have a borrowing minimum which might be more than you need. 

Personal loan structures might not be favourable for your purposes either. Personal loans have fixed scheduled payment structures. If you’re not able to make steady payments, a flexible form of financing might be a better option. There could also be other fees in addition to the payments, for example, origination fees and prepayment penalty fees. Finally, there’s a potential for scams which could leave you in a worse situation. 

Alternatives To A Personal Loan

If a personal loan doesn’t fit with your financial goals and situation, there are several alternatives available to you. Let’s explore your options below and what makes them different from a personal loan. 

Balance Transfer

If your credit is good, you might be able to borrow at a lower rate by taking advantage of balance transfers. In order to do so, you’ll need to make the purchase on a credit card or use a convenience cheque. Then, you can rollover the debt using a balance transfer to take advantage of the beneficial offer. Balance transfers are ideal if you can repay the amount on time, if you can’t, you’ll end up paying high interest. 

Pros: Low or 0% interest for a specific period (usually 6 months), flexible repayment.

Cons: High-interest penalties if you don’t pay in time, hidden fees, need to have an existing credit card.

How to decide between a balance transfer and a personal loan. 

Home Equity Loans

A home equity loan is a type of loan that uses the equity you’ve built up by paying off your mortgage as collateral. Home equity loans are similar to personal loans in many ways, the main difference is personal loans usually have no collateral. Home equity loans are an installment loan and require regular payments. 

Pros: Lower interest rates, they can be used for any purpose. 

Cons: Could lose your house if you don’t repay the loan.

Peer-To-Peer Loans

Instead of borrowing from traditional institutions, such as banks or credit unions, you can borrow from other individuals through peer-to-peer lending markets. This type of financing is structured similarly to personal loans but can be a great alternative for individuals who don’t qualify for traditional financing. 

Pros: Quick turnaround times, low credit scores are okay, flexible payment terms sometimes an option.

Cons: No guarantee that you’ll get funded, origination fees are sometimes charged.

Credit Cards

With a credit card, when you charge an amount to the card it becomes due at a future date, typically within a month. Credit cards offer flexibility for consumers who need access to a quick form of financing. One of the main benefits is that you don’t need to repay your credit card balance in full, you can simply make the minimum payment. Although, if you don’t pay the balance in full when it’s due, you’ll incur additional costs. It’s best if you repay the balance in full to avoid fees and to preserve your credit. The credit limits are much lower on a credit card which is ideal if the expense you’re incurring is under $1,000.

Pros: Widely accepted, flexible repayment, low credit limits, additional perks (for example, rewards and purchase protection).

Cons: Possibility of taking on too much debt, high-interest rates, penalties for late payments.

Line Of Credit

If you’re unsure of the final cost of your expense, a line of credit is an optimal solution. Lines of credit have a maximum amount you can borrow, but you don’t have to borrow the entire limit, only what you need. Once you take out money, you only need to pay interest on the outstanding balance until it’s fully paid off. A line of credit can be used over and over again. Plus, the payment schedule is extremely flexible. 

Pros: The amount you can borrow is flexible, it can be reused in the future, helpful for individuals with irregular income and expenses. 

Cons: Borrower fees are sometimes applicable, difficult to qualify if you have low income or short credit history.

How To Choose The Right Financing Option For Me? 

Before choosing a financing option, it’s best to consider your goals and current financial position. Knowing that information can clear up a lot of questions regarding what financing will work and what won’t. To help determine which option is best, consider the below factors: 

  • Affordability and cost
  • Lender reputation
  • Loan purpose
  • Financing offers and comparison
  • Processing time 

Find What Works Best For You

Everyone has unique financial needs and goals, the idea is to find what works best for your circumstances. Personal loans might be the right decision, or another financing option might be more optimal. If you’re unsure of which option is right for you, Loans Canada can help you research and weigh your options and find the right product or lender. 


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Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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