Different Ways to Borrow Money

Peer Lending

Peer lending creates a win-win opportunity for people who need money and people seeking nontraditional ways to earn a higher than average return on their investment. "Since its launch in February 2006, Prosper.com has facilitated $90.5 million in loans among nearly 440,000 individuals," reports Smart Money. Websites like Prosper, the Lending Club and Kiva give individuals access to money without the qualifying process required for conventional loans. Peer to peer lending sites request your background, contact information and social security number when you create a profile. Members with bad credit are labeled as high risk borrowers so that lenders can choose their desired level of risk and return. Higher interest rates are incurred from high risk borrowers.

Borrow from yourself through your retirement account. Review your policy to determine whether borrowing is allowed. Many employers allow employees to borrow from their 401(k) in the event of a major life change such as the birth of a baby, if a home is pending foreclosure or a medical emergency. The money can be repaid immediately or in installments over time. 401(k) loans carry a small interest rate to cover the cost of the transactions, but are much less than the penalties incurred from extracting money from your 401(k) before retirement.

If your home has equity, consider cash out refinancing to extract cash. Cash out refinancing requires obtaining a second mortgage to cover the cost of the cash you take out in equity. Cash out refinancing is a good option when you plan to use the money for a long term investment such as improvements on your home to increase its value or an investment in a business. If you are looking for extra cash to buy a new car or go on vacation, cash out refinancing may not be a viable option. Consider whether you want to pay on the item you want to borrow money for over the next 30 years before seeking a cash out refinance.

Like peer-to-peer lending, there are peer-to-peer donation sites available that allow you to solicit money from people you know to pay for a project or cause. If your money will be used toward a business venture, social donation sites may work well for you. Users who contribute money to business ventures through social donation sites like Fundable expect compensation in a range of forms. They may receive acknowledgment as a sponsor, screen credits or free products from the business created. Donations are nominal but can amount to large sums if you have a massive contact list.