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Welcome to the Credit.com newsletter!
This free newsletter delivers easy-to-read tidbits about credit
directly from personal finance experts. In this issue, we're comparing different ways to borrow $5,000 online.
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If you're swamped with debt, it can sometimes feel like there's no way out. Luckily, there are some good debt redutction options available.
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On the Blog
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If you need some extra money to finance a remodel, go back
to school, pay for a wedding, cover a medical expense, or consolidate
bills, there are some great options available online. For this
month's newsletter, we'll give you a quick run down of the
best ways to borrow $5,000:
Personal Loan
You can borrow $1,000 to $15,000 online with a personal loan. The repayment term is usually between 1-4 years depending on how much you borrow. Your interest rate will depend on your credit standing, but it will be much lower than a credit card is most cases. There's no prepayment penalty with a personal loan, meaning you can pay it off early anytime.
After you apply for a personal loan online, our system forwards your information to the best- matched lender from our network. This lender will contact you directly to complete your loan approval and give you a no-obligation quote. If you decide to accept the loan, you'll go directly to the lender's local office to pick up your money.
Personal loans are convenient to use because they have a low interest rate and a long repayment term. For example, a $5,000 personal loan for three years with a 12% APR would have a monthly payment around $166 a month. After three years, you would have paid around $980 in interest.
Credit Card
If you have a plan to repay the $5,000 debt within a couple of months, you might consider using a credit card instead of a personal loan. Although credit card interest rates are higher, they are more convenient to use for a short term debt. If you paid off a $5,000 debt on a 15% APR credit card in three months ($1,666 a month), you would be charged about $128 in interest.
Using a credit card would get very expensive if you didn't pay off that debt right away. With only paying the minimum payment due on your $5,000 each month, it would take you 11 years and cost you $2,200 in interest to pay off the account.
Also, you should make sure that you have enough available credit limits so that charging $5,000 won't cause damage to your
debt-to-limit
ratio and credit score.
Peer-to-Peer Lender
New lending services are popping up online
that connect people wanting to invest money directly with borrowers.
Lending Club
is an example of a company that lets you bypass the banks
and borrow directly from a group of individuals. You can borrow
$500 to $25,000 for up to three years with a peer-to-peer lender.
You'll need good credit to qualify, however -- usually a score
above 680.
Peer-to-peer lending is a great option for borrowers with perfect credit looking for a really low rate, as low as 7.37%. If you got a 3 year loan for $5,000 at 10% through Lending Club, you would pay about $800 in interest.
All three of these loan options allow you to pay back your $5,000 debt early without penalty. Early payment is a key way to reduce your interest costs on your debt. No matter which borrowing method you choose, it's important to make all your payments on time each month
Any more questions about how to borrow $5,000? Other borrowing ideas to share? Send us your questions and comments at tidbits@credit.com anytime!
Quote of the Month
"I would rather sit on a pumpkin and have it all to myself than be crowded on a velvet cushion."
- Henry David Thoreau
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