What Is a Lending Circle and How Does It Work?

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How does a lending circle work?
Requirements for participating in a lending circle
Lending circles vs. personal loans
Lending circles vs. payday loans
How a lending circle can build your credit
What to ask yourself when considering a lending circle
Do you need the money immediately?
Can you afford to make regular contributions?
Are there legal protections in place?
Lending circle alternatives
Other ways to get cash
- Help for basic needs. Local financial assistance programs through nonprofits, charities and religious organizations can help you get food, clothing and transportation. If you’re struggling to cover living expenses, contact your utility company, landlord or mortgage issuer to defer a payment, or reach out to a housing counselor for long-term help.
- Family loan. Get a low- or no-cost loan from someone you trust. You and the lender can draw up a repayment plan, including payment amounts and how the money will be used. Mixing money and relationships can be risky, so be sure both parties are comfortable with the agreement.
- Paycheck advance. Ask your employer for early access to your paycheck, or use a cash advance app to borrow from your future earnings. These apps often charge little to no fees. Cashing in early means you won’t get your full paycheck on payday, so check your budget to ensure you won’t miss any bill payments.
- Other ways to make money. You can make money selling clothes, freelancing or driving for a rideshare service. Though there’s no interest involved, this option may require the luxury of time.
Other ways to build credit
- Secured credit card. Secured credit cards require a cash deposit that’s usually the amount of your credit line. The issuer holds the deposit in case you don’t pay the bill, and reports payments to the credit bureaus as you use the card and pay it off. You get the deposit back once you close the account. You don’t need good credit to get a secured credit card.
- Credit-builder loan. A credit-builder loan forces you to save money while building credit. A lender holds onto the amount you want to borrow while you make payments. The lender reports the payments to the credit bureaus and releases the money after you’ve paid off the loan. Credit unions and community banks offer credit-builder loans.
Article sources
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