Dec 21, 2018 Sean Albert
Unfortunately, many consumers believe banks are the only legitimate sources of financing.
Contrary to popular belief, there are a number of alternative lending options people can go to in times of need. Whether a person is looking to borrow money to pay for a car or fund a new business, it's important for him or her to weigh all available monetary provisions. Making the right choice depends on:
- The amount of cash an individual needs to borrow
- His or her current and anticipated financial situation
- The reason why financial assistance is needed
- The estimated amount of time it's going to take to pay back the loan
To provide further clarity on the matter, The Frugal Entrepreneur outlined 6 types of alternative financing consumers can benefit from if a pressing situation ever arises.
1. Credit Unions
At first glance, these institutions appear similar to banks. However, further scrutiny will show they're quite different. They're nonprofit organizations that provide alternative consumer credit to people belonging to a certain profession or community, such as teachers or labor associations. Because these organizations don't focus on revenue, they can often offer lower interest rates on loans.
2. Retail installment financing
This method allows people to pay for specialty goods over a certain amount of time, according to LAWriter. For example, a person who purchases a car worth $15,000 may pay $300 installments on a monthly basis. Particularly, the automotive industry often allows people to finance their vehicles in this manner.
3. Micro Lenders
These particular entities provide consumers with loans over the course of a long period of time, with the amount exceeding no more than $25,000. Individuals looking to start a new business in an economically challenged community can typically obtain assistance from these organizations.
4. Lease-back programs
This practice enables consumers owning valuable assets to sell that property to a lender and then lease it back over a pre-defined period of time. This allows the person leasing the item to build up capital while still being able to use it.
5. Peer-to-peer lenders
One particular approach has become more popular with the rise of social media. P2P loans typically occur over a term of one to five years, typically consisting of compensation between $25,000 to $35,000. The Frugal Entrepreneur noted the frequent absence of a financial institution in this respect, with two or more individuals sanctioning the agreement independently.
6. Crowd funding
Those who are familiar with gofundme.com or other such websites have encountered crowd funding. Both businesses owners and individuals partake in this practice, aggregating money from a large collection of donors who contribute small amounts of money. Those who have ideas for startups or students struggling to pay tuition fees typically benefit from this form of alternative lending.
A number of other options apply to businesses already immersed in operations. As one can see, consumers can benefit from capitalizing on a number of practices that suit different needs. If individuals are educated on these matters, they'll be able to reach the financial success they desire.