No matter how financially responsible you are, there's a good chance that at some point in your life, you'll be in a position where you want to borrow money. And there is no perfect solution for doing so.
Understanding the basics of borrowing money
One option is to borrow money from family and friends, but experts often warn against it since these types of loans can strain relationships.
Or, you could borrow from your retirement savings. However, experts caution that this can be risky. If you get laid off or change jobs, repayment is usually due by the next year's tax day, and borrowing from your retirement account could cause you to miss out on growth over the years.
Borrowing against your assets, like your investment portfolio or your home, or taking out a personal loan could be better alternatives. Bear in mind, though, that any method will cost you interest, and you'll be responsible for paying back the loan in full.
7 smart ways to borrow money
If you need to borrow money, here are some of the best ways to do it, from the least to the most expensive.
1. A 401(k) loan
Typical interest rate: WSJ prime rate +1% to 2%
Who can use one? Borrowers with a 401(k) balance
Since you're borrowing your own money, the interest isn't paid to a lender. Instead, it goes back into your 401(k) account. There's also no credit score evaluation to get a 401(k) loan. The IRS does limit how much you can borrow — whichever is less than $50,000 or 50% of your vested 401(k) balance within a 12-month period.
However, any funds borrowed from your 401(k) won't grow, so this type of loan can have a significant impact on your financial future.
You typically have a five-year period to repay the loan — but if you lose your job during the repayment process, the remaining loan amount may be due immediately. If you can't pay back your 401(k) loan by the close of the tax year, the IRS will consider the remaining balance a distribution, and you'll need to pay taxes as well as a 10% early withdrawal fee penalty on the amount.
How to apply for one: Ask your employer about their 401(k) loan options and fill out the necessary paperwork.
2. A home equity line of credit
Typical interest rate: HELOC interest rates are usually variable and tied to the prime rate, which was 7.5% as of December 2024. Banks usually add a margin to the prime rate to determine their HELOC interest rates.
Who can use one? Homeowners who have at least 20% equity in their homes
Home equity lines of credit, also known as HELOCs, are popular ways to borrow at interest rates much lower than most credit cards or personal loans can offer since they are secured loans backed by your home as collateral. This option is only available to homeowners with equity in their homes, so it might not be the right option for everyone.
HELOCs generally limit the amount you can borrow to 85% of your home's equity or 85% of the amount it's worth minus what you owe on your mortgage. With this type of loan, you borrow what you need as you need it since the line of credit stays open, almost like a credit card.
However, it does mean that you're putting your home up as collateral — you risk losing your home if it isn't repaid. When used correctly, however, it can help you leverage the value you have built in your home at a low interest rate.
How to apply for one: Apply for a HELOC through any major bank that offers them. You'll give information about your home, your mortgage, your income, and more. Then, you'll need to have your home appraised. Finally, close on your loan and start drawing on your funds.
3. A home equity loan
Typical interest rate: 7.24% on average (for a 10-year term).
Who can use one? Homeowners who have at least 20% equity in their homes
While a home equity line of credit and a home equity loan might sound similar, and even both can be referred to as "second mortgages," they're rather different. A home equity loan also borrows against the equity in your home, but it operates more like a traditional loan than a HELOC does. The payment comes as a lump sum rather than on an as-needed basis and will have a fixed interest rate, monthly payment, and repayment date.
Home equity loans are a great alternative to personal loans for homeowners — they function like personal loans without the variable interest rate and revolving credit that come with a HELOC. Like a home equity line of credit, your house is used as the collateral, which puts it at stake if you don't repay the loan. A home equity loan is best for someone who knows how much they need to borrow, wants a fixed monthly payment while repaying, and wants to only receive the funds once.
How to apply for one: Banks and lenders offer home equity loans, and the application is similar to that of a HELOC. You'll need to have information about your home, mortgage, and income, as well as an appraisal. Then, you'll close on your home equity loan and receive the funds you borrowed as a lump sum.
4. A credit card
Typical interest rate: 21.47% as of the fourth quarter of 2024, according to Federal Reserve data.
Who can use one? People with good or better credit, typically a minimum of 670 for a 0% APR credit card
Credit cards are a notoriously expensive way to borrow money. If you don't pay off your balance every month, the high interest rate means borrowing money that gets expensive fast. So, if you're considering putting your expenses on a credit card and know you can't pay them off immediately, you might want a credit card with an introductory 0% APR.
These 0% APR cards give you a period of interest-free credit, generally between nine and 21 months, depending on the card. If you pay off your balance in full before the 0% interest rate expires, it could mean free borrowing. These cards are often referred to as balance transfer cards because you can move your balance from another card (for a fee) to take advantage of the introductory rate. It's a good option to cover small bills and purchases for anyone who's confident they can pay back the funds quickly.
However, note that after the introductory period ends, the card will apply a regular (typically high) interest rate to the existing balance. If you aren't going to pay off your balance in time, it might not be the best borrowing method for you.
How to apply for one: To get an introductory APR offer, you'll need to open a new card. Check your credit score for free online, and then apply for a card that fits your credit score. After applying for your card, look for any fees and look for a term that will fit your plans for repaying. Once you apply for and get your new card, make sure to note when the interest rate will increase and plan to pay off your balance before then.
5. A personal loan
Typical interest rate: 20.98% as of February 2025.
Who can use one? Anyone with a good or better credit score.
Personal loans have high interest rates, but there's no limit on what you can do with the money.
Personal loans have high interest rates, but there's no limit on what you can do with the money.
While it's possible to find interest rates under 4% on the best personal loans, it's only possible to get rates that low with the best credit scores. More frequently than not, interest rates start at 6% and can go into the mid-30% range. Additionally, some lenders charge percentage-based administrative or origination fees.
Personal loans aren't the most affordable way to borrow, but they are often unsecured loans, meaning that you won't have to put up any collateral, like a home or car, for the loan. For someone without a home or a large investing portfolio, a personal loan might be the best option.
How to apply for one: Search for a personal loan that fits your income, credit score, and needs. Pre-qualify with several different lenders online, and look for the lowest APR available to you. Next, gather information about your income, expenses, and more, and finish the application.
6. A portfolio line of credit
Typical interest rate: 5.41% as of February 2025, according to Wealthfront.
Who can use one? Investors with a significant portfolio and net worth. Minimum portfolio requirements vary by company.
Another way to borrow money is a portfolio line of credit, also called borrowing on margin. "Anyone who has after-tax money in an investment portfolio can utilize a portfolio line of credit," says Monica Sipes, a financial planner with Exencial Wealth Advisors.
However, there's a catch: You have to have a significant investment portfolio to take advantage. This type of loan works by allowing the bank to lend against your portfolio. Wealthfront requires that customers have a portfolio valued at over $25,000, for example. "I recommend them more so for a higher net worth client," says financial planner Levi Sanchez.
"The cool thing about those types of loans is that they're generally interest only, so it gives the borrower a lot of power in terms of when to pay back," adds Sipes. "They have very aggressive interest rates right now, meaning that they're inexpensive." Additionally, portfolio lines of credit are available rather quickly, as there's far less paperwork involved with this than a loan or other lines of credit.
How to apply for one: Online banking service Wealthfront offers these portfolio lines of credit and allows investors to borrow up to 30% of their taxable account balance. They're also available through other investing platforms and banks.
7. Borrowing from friends or family
As everyone's relationship with their friends and family looks different, this may not be an option for all borrowers. That said, if you are able to borrow money from your friends or family, you can often get a low or no-interest loan. This setup is a better deal than most of the options listed above.
How to borrow money safely and avoid pitfalls
Not all borrowing options are created equal. It's worth taking the time to do your research and find the most reasonable way to borrow money within your budget. Here are ways to borrow money to avoid if possible:
Payday loans
A payday loan is a high-cost, short-term, unsecured loan that has a principal that is a portion of your next paycheck. Payday loans are often for small amounts of money, commonly $500 or less. Payday loans provide immediate funds, come with extremely high interest rates, and are usually based on your income.
Payday loans make it easy to fall into a cycle of debt. If you fall behind on payments, the interest you're being charged can continue to add up until you struggle to pay it back. Your options to put your loan in forbearance (pause your payments) are also limited with payday loans.
Cash advances
Cash advances are a slightly better option than payday loans — they come with lower interest rates and fees than payday loans. Cash advances are often available through your credit card issuer or various apps.
However, the repayment term is usually based on your pay cycle and may make it hard to keep up with your financial obligations.
Get personal loan rates
6.49% to 25.29% (with AutoPay discount, rates vary by loan purpose)
$5,000 to $100,000
660
Pros
Cons
LightStream offers some of the lowest rates on personal loans out there, provided you have a great credit score. The lender also has loans of up to $100,000 and can supply you with funding on the same day you apply and are approved.
LightStream Personal Loan- Loan amounts range from $5,000 to $100,000
- Loan term lengths range from 2 to 12 years
- Apply online and you'll receive a response shortly during business hours.
- Receive your funds as soon as the same day
- Loans are made by Truist Bank, member FDIC
8.74% to 35.49% fixed (with all discounts)
$5,000 to $100,000
680
Pros
Cons
SoFi is a strong personal loan lender for those with high credit scores — you'll get perks like no fees required. The best personal loan for you depends on your credit score, which will determine what you qualify for and can lower your rate.
SoFi- Loan amounts range from $5,000 to $100,000
- Loan term lengths range from 2 to 7 years
- Usually receive your money in a few business days after your application is approved
- Loans are made by SoFi Lending Corp.
9.99% to 35.99%
$1,000 to $50,000
580
Pros
Cons
Upgrade is a solid lender if you can qualify for its lowest interest rate. But if your credit isn't in great shape, you may be able to find a better deal elsewhere.
Upgrade Personal Loan- Loan amounts range from $1,000 to $50,000
- Loan term lengths range between 2 to 7 years
- You can get your money within one business day after your loan is reviewed and approved
- Loans made by Upgrade's lending partners
FAQs
What is the safest way to borrow money?
The safest way to borrow money is to do so through reputable lenders and institutions with reasonable interest rates and terms that align with your ability to repay. High-interest options like payday loans and cash advances should be avoided.
Can borrowing money improve my credit score?
Borrowing and repaying money can improve your credit score. Doing so demonstrates your reliability in managing and repaying debts.
Is it better to borrow from a bank or a credit union?
Banks and credit unions each have their advantages. A bank may have more loan options, while a credit union is more likely to have lower interest rates and fees. Choose between them based on the terms that best fit your needs and financial situation.
What is the cheapest way to borrow money?
The cheapest way to borrow money would be to have a friend or family member give you a loan. While these loans charge little to no interest, they are recommended as a last resort because they often strain relationships.
Can I borrow money without a credit check?
Yes, it is possible to borrow money without a credit check by taking out a 401(k) loan, opening a portfolio line of credit, or when you borrow money from family or friends.
What are the risks of borrowing money?
Borrowing money comes with several risks, such as damaging your credit, losing collateral (e.g., your house or car), defaulting on your loan, straining relationships with loved ones, and more.
Fixed rates from 8.74% to 35.49% APR. APR reflects the 0.25% autopay discount and a 0.25% direct deposit discount. SoFi Platform personal loans are made either by SoFi Bank, N.A. or , Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. SoFi may receive compensation if you take out a loan originated by Cross River Bank. These rate ranges are current as of 08/08/25 and are subject to change without notice. Not all rates and amounts available in all states. See SoFi Personal Loan eligibility details at https://www.sofi.com/eligibility-criteria/#eligibility-personal. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, income, and other factors. Loan amounts range from $5,000— $100,000. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 9.99% of your loan amount for Cross River Bank originated loans which will be deducted from any loan proceeds you receive and for SoFi Bank originated loans have an origination fee of 0%-7%, will be deducted from any loan proceeds you receive.
The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Autopay is not required to receive a loan from SoFi.
Direct Deposit Discount: To be eligible to receive an additional (0.25%) interest rate reduction on your Personal Loan (your "Loan"), you must set up Direct deposit with a SoFi Checking and Savings account offered by SoFi Bank, N.A., or enroll in SoFi Plus by paying the SoFi Plus Subscription Fee, all within 30 days of the funding of your Loan. Once eligible, you will receive this discount during periods in which you have enabled Direct Deposit to an eligible Direct Deposit Account in accordance with SoFi's reasonable procedures and requirements to be determined at SoFi's sole discretion, or during periods in which SoFi successfully receives payment of the SoFi Plus Subscription Fee. This discount will be lost during periods in which SoFi determines you have turned off Direct Deposit to your Checking and Savings account or in which you have not paid for the SoFi Plus Subscription Fee. You are not required to enroll in Direct Deposit or to pay the SoFi Plus Subscription Fee to receive a Loan.
Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2024 was around $33K. Information current as of 11/03/25. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.
