Need to Borrow Money? Here Are Your Best and Worst Options

The best and worst ways to borrow money

Four factors you’ll want to consider are: the initial cost of borrowing; convenience and timeliness; the interest on the loan; and the risks you’re taking on. Options to compare include:

Credit cards: If you have a credit card, borrowing is fairly effortless. That convenience comes at a price, however, as you’ll pay an average interest rate of 15.59%, according to CreditCards.com. If you’re going to carry a balance for a long time, those high interest makes credit cards a less-than-ideal option. On the other hand, credit cards are unsecured debt — there’s no collateral, so your assets aren’t seriously at risk in case of nonpayment. One caveat: Opening a balance transfer card with 0% interest can work as part of a debt repayment plan. You’ll pay a small fee — usually around 3% — to transfer other, higher-interest debt to the new card, and pay no interest on it for around a year, giving you time to pay it down.

Personal loans: Banks, credit unions, and other financial institutions make personal loans available with either no fees or relatively low application or origination fees. Interest rates are lower than credit cards at around 10.3% to 12.5% for those with excellent credit, but higher than other options such as home equity loans. Some personal loans offer fixed rates, but others are variable, so there’s a chance your interest — and your payments — could increase. Because personal loans are unsecured, the risk to your home and assets is low in case of nonpayment. Repayment terms vary by loan, but you can often stretch out repayment for years.

Home equity loans: Home equity loans allow you borrow a lump sum against the value of your house. Interest rates are relatively low — around 5.31% this month — but the initial costs can be high. Home equity loans also require you to actually have equity in your home, and the risk level is high because if you default, the lender could foreclose on your home.