A personal loan is borrowed from a bank, credit union or online lender. This kind of loan is highly flexible and can be used for many different purposes. Many people use personal loans as an alternative to credit cards because the interest rates are generally lower and fixed — meaning a set monthly payment. 

Because personal loans require a strong credit score and may involve substantial fees, some borrowers seek out alternative options. There are several choices available for borrowers who may not qualify for — or don’t want — a personal loan.  

1. Home equity loan or HELOC

For borrowers who are homeowners, a home equity loan or home equity line of credit (HELOC) may be one way of accessing funds at a more competitive interest rate than a personal loan. Because home equity loans and lines of credit are secured by the equity a borrower has built in their home, interest rates tend to be lower, capping out around 19.99 percent — compared to personal loans, which can range up to 35.99 percent. 

Borrowers may consider a home equity loan or HELOC to finance larger expenses, generally those with a price tag of $10,000 or greater. Borrowers who have significant equity in their home and a reasonably low debt-to-income ratio (DTI) may consider this as a strong alternative to getting a personal loan. 


  • Longer repayment terms than many personal loans, sometimes up to 20 years. 
  • Generally more favorable interest rates than personal loans. 


  • More stringent qualifications than personal loans. 
  • Require substantial home equity for approval. 
  • Borrowers with a high DTI may not be approved. 

2. Credit cards

Credit cards are a common alternative to personal loans, though many factors differentiate the two. If you are able to plan and pay your balance in full each month, credit cards may be a preferable option for a couple of reasons. Firstly, the opportunity to leverage rewards can be a draw for some borrowers. Secondly, credit cards are more flexible — once you are approved, you typically have immediate and ongoing access to your full line of credit. 


  • A track record of timely payments can strengthen your credit. 
  • Some cards provide rewards for each dollar borrowed, like cash back or points toward travel. 
  • The full line of credit is available right away, whereas personal loans require an application and processing time. 
  • You can borrow and pay back incrementally as needed, as credit cards are a type of revolving credit. 


  • Interest rates may be substantially higher than for a personal loan if you need to carry a balance. 
  • Carrying a balance can ding your DTI, making you less likely to qualify for other borrowing. 
  • You may be approved for more than you are comfortable paying back each month, and it can be easy to land yourself on a debt treadmill. 

3. Personal line of credit

If you’re unclear about exactly what you’ll need to borrow, a personal line of credit may be a good alternative to a personal loan. Like credit cards, personal lines of credit are unsecured and revolving, so you can borrow what you need, as you need it.  

If you suspect you will need to return to the well multiple times, a personal line of credit may be more fitting than a personal loan. This type of credit is often suitable for expenses like home improvement projects, personal emergencies or to offset fluctuations in your income. 


  • You can borrow as much or as little as you need, as it is needed. 
  • You’ll only be charged interest on what you borrow. 


  • Eligibility requirements may be strict. 
  • Variable interest rates can make repayment terms hard to predict. 
  • Personal lines of credit are not as common as credit cards or personal loans. 

4. Retirement loan

People who have saved money in an employer-sponsored retirement plan may be eligible to borrow from themselves in the form of a 401(k) loan. This is generally a good option for borrowers with less-than-stellar credit, as no credit check is required.  

Borrowers should be aware that borrowing from retirement comes with some caveats — chiefly, that borrowing is restricted to current retirement accounts, and limited by how much you have vested in the account. Also beware that if you leave your job before the loan term is up, you may be required to repay ahead of schedule. 


  • Reasonably quick access to lump sums of cash. 
  • More relaxed borrowing requirements than many personal loans. 
  • Unlike withdrawals from a retirement account, 401(k) loans do not tend to include immediate taxes or penalties. 


  • Limited to $50,000 or 50 percent of vested balance. 
  • Retirement accounts from old employers are not eligible for borrowing against. 
  • Loans not repaid on time can turn into a distribution, with taxes and penalties attached. 
  • Your employer or retirement plan may not allow this kind of loan. 

When to avoid a personal loan 

A personal loan may not be the right choice for you if you do not have a clear idea of how you will be spending the money. While it may be convenient to have extra cash on hand, you will ultimately be paying interest on any borrowed money. If you don’t absolutely need the funds, you could be doing more harm than good to your finances in the long run. 

If you have a habit of overspending, be mindful of this before borrowing a personal loan. Many people use a personal loan to consolidate their debts, but fail to adjust their credit card spending as a part of the process, which can cause more issues in the long run. 

Research ahead of borrowing 

Before committing to a personal loan, or an alternative, be sure you can handle the monthly payments. A personal loan calculator can help you estimate your payment based on interest rates and the loan term. In the case of a credit card or other variable rate product, you may not be able to estimate this cost as easily. 

And if you don’t need money urgently, consider saving incrementally toward the sum you need rather than borrowing. Ideally you can save what you might have paid toward interest.