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If you have big expenses coming up, a personal loan can help you cover them. Common personal loan uses include financing big-ticket items such as a wedding, a home improvement project, or a vehicle purchase.
You can also use a personal loan to pay down existing high-interest debt, such as credit card debt. Depending on your credit score, using a personal loan could mean lower interest rates, which can save you money. However, you can’t use personal loans for everything. Most lenders restrict using personal loans for your education or for starting a business.
Here are six ways to use a personal loan:
- Debt and credit card consolidation
- Unexpected medical bills
- Home improvement projects
- Major life events
- Vehicle purchase
- Emergency expenses
- Restricted personal loan uses
- Line of credit vs. a personal loan
- Different personal loan uses mean different terms
1. Debt and credit card consolidation
With debt consolidation, your personal loan pays off your existing debts, so you just have one loan and one monthly payment. When your personal loan has a lower interest rate than your other debts, consolidating can help you save money on interest and lower your payments.
Using a personal loan for debt consolidation can help you streamline your finances, boost your credit score, and possibly get out of debt faster.
You can also use a personal loan to pay off high-interest credit cards. Instead of paying the minimum amount due each month and seeing your balance swell, you can use a personal loan to consolidate those cards into one monthly payment.
Qualifying for a lower interest rate will save you money on interest in the long term, too.
2. Unexpected medical bills
Even with insurance, medical expenses can still add up. When you have large, unexpected medical bills, a personal loan could let you pay them off all at once. Then, you can take your time repaying the personal loan month by month.
If you’re worried about a late hospital bill wrecking your credit, you can use a personal loan to pay off your medical debt or dental bills in full. You can even use a personal loan to pay for braces, cosmetic surgery, or fertility treatments.
You can use a personal loan to pay off your medical debt to avoid collections with one lump sum payment, but it’s best to speak with your medical provider about a repayment plan first. Medical bills don’t typically charge interest, so working out a payment plan instead can potentially help you save money.
Learn More: How to Apply for a Personal Loan
3. Home improvement projects
Whether you’re planning repairs, upgrades, or renovations, having extra cash on hand to pay for home improvements makes it easier to get started and keep the momentum rolling.
A personal loan gives you a lump sum up front, so you can use it to buy materials or pay contractors. Then, you simply pay back the loan over time, in installments according to your loan agreement. Although you will pay interest on the amount borrowed, it could be much less than what you’d pay using a high-interest credit card.
Before you sign on, compare the cost of a personal loan to a home equity loan or line of credit. See which one offers a lower interest rate and friendly repayment terms. Remember, though, that HELOCs and home equity loans use your home as collateral. If you fall behind on payments, your home could get seized.
Check Out: The Best Home Improvement Loans
4. Major life events
Important moments and milestones in life can be expensive. Whether you’re moving, marrying, or adopting a child, a personal loan can help you pay for these events without resorting to your credit card.
Planning a wedding involves so many different costs: the venue, the flowers, the music, the clothes, the decor, the cake, the food and drink. No matter if you’re getting married close to home with all of your friends and family or far away in an intimate ceremony, wedding expenses always seem to add up quickly.
A personal loan lets you pay each deposit and bill as it comes up, without worrying about a huge credit card bill dragging you down before you say your “I dos.”
When it’s time to say goodbye to a loved one, the last thing you want to worry about is how to pay for it. Using a personal loan for funeral expenses ensures your loved one has a proper sendoff and lets you focus on the ceremony, not the bill. You can use a personal loan to pay for the officiant, cremation or burial expenses, travel costs, and even a reception for family and friends during this difficult time.
If you’ve been planning a once-in-a-lifetime trip but aren’t sure how you’ll pay for it, a personal loan might be just the ticket. You can pay for airfare, hotels, restaurants, souvenirs, and excursions with personal loan funds. You’ll receive the funds up front to pay for your trip, and then repay the loan over time when you get back.
5. Vehicle purchase
You can even use an unsecured personal loan to buy a vehicle, instead of using an auto loan, which uses your vehicle as collateral. This can be especially handy when you’re buying one from a private party. However, an unsecured personal loan might cost you more than an auto loan. Depending on your credit, an auto loan may cost you less in total interest than a personal loan.
Compare rates between auto loans, RV loans, boat loans, and personal loans to see if it makes sense to use a personal loan to finance your next vehicle purchase.
See Also: 4 Ways to Get a Loan for a Motorcycle
6. Covering an unexpected expense
A broken appliance such as a fridge or washer and dryer can be frustrating, in terms of convenience and an unexpected expense in your budget. If you don’t have the funds to spend on a large purchase, you can use a personal loan to get you the money you need and replace your appliance or technology as soon as possible.
What you can’t use a personal loan for
While you can use a personal loan for many reasons, lenders may also have restrictions on their use. Here are some examples:
College and other education costs
In general, it’s best not to use a personal loan for your education. You should consider exhausting federal student loans first and filling out the Free Application for Federal Student Aid, or FAFSA, before turning to a private student loan. You can also apply for grants and scholarships to fund many of the expenses you might consider using a personal loan for when it comes to your education.
Starting a business
When you’re just starting out, it can be tough to drum up enough cash to launch your business — even if your business plan is strong. Unfortunately, while you may wish to take out a personal loan for equipment and inventory, most lenders don’t offer this as an option. A loan through the Small Business Administration or business grants could help you cover your business needs.
Making a down payment on a home
Most lenders don’t offer the option of using a personal loan for a down payment on a home. Instead, consider a first-time homebuyer program, which can offer down payment assistance and other benefits to help you buy a home.
Learn More: Personal Loan Requirements
Personal line of credit vs. a personal loan
If it seems like a personal loan isn’t right for you, consider a personal line of credit. This is a revolving line of credit that you can use and pay back as needed. Unlike a personal loan, which delivers you a lump sum of funds, a personal line of credit works more like a credit card. You can take only what you need, when you need it.
Here’s a comparison table to help determine if a line of credit is the right option.
|Personal loan||Personal line of credit|
|Credit type||Make regular monthly payments on an installment loan||Borrow as needed, much like a credit card|
|Interest rate||Fixed (5.40%-35.99% APR)||Variable|
|Amount limit||Up to $100,000||Up to $50,000|
|Term length||1-7 years depending on lender||Ongoing until the draw period is over|
|Disbursement||Lump sum payment||Access to the account funds until draw period closes|
Different personal loan uses mean different terms
When you apply for a personal loan, your lender will want to know what you intend to use the funds for, and as a result, your loan could have different terms.
For example, a credit card consolidation loan could have a different term length, loan amount, and interest rate than a personal loan used for a kitchen remodel. Check with your bank or lending institution to see the available terms, and try our personal loan calculator to see what your payments might look like.
No matter how you fund your next big expense, it pays to research the best terms and rates available to you.
The personal loan companies in the table below compete for your business through Credible. You can request rates from all of these partner lenders by filling out just one form (instead of one form for each) and without affecting your credit score.
|Lender||Fixed rates||Loan amounts||Check rates|
|9.95% - 35.99% APR||$2,000 to $35,000**|
|11.79% - 20.84% APR||$10,000 to $50,000|
|8.99% - 35.99% APR||$2,000 to $50,000|
|7.99% - 24.99% APR|
$2,500 - $40,000
|11.72% - 24.67% APR||$3,000 to $40,000|
|9.57% - 35.99% APR||$1,000 to $40,000|
|7.49% - 25.49% APR with autopay||$5,000 to $100,000|
|18.0% - 35.99% APR||$1,500 to $20,000|
|8.49% - 17.99% APR||$600 to $50,000 |
(depending on loan term)
|14.3% - 35.99% APR||$3,500 to $40,000|
|8.99% - 25.81% APR10||$5,000 to $100,000|
|11.69% - 35.99% APR7||$1,000 to $50,000|
|8.49% - 35.99% APR||$1,000 to $50,000|
|6.4% - 35.99% APR4||$1,000 to $50,0005|
Dori Zinn has contributed to the reporting of this article.
Prequalified rates disclosure: Prequalified rates are based on the information you provide and a soft credit inquiry. Receiving prequalified rates does not guarantee that the Lender will extend you an offer of credit. You are not yet approved for a loan or a specific rate. All credit decisions, including loan approval, if any, are determined by Lenders, in their sole discretion. Rates and terms are subject to change without notice. Rates from Lenders may differ from prequalified rates due to factors which may include, but are not limited to: (i) changes in your personal credit circumstances; (ii) additional information in your hard credit pull and/or additional information you provide (or are unable to provide) to the Lender during the underwriting process; and/or (iii) changes in APRs (e.g., an increase in the rate index between the time of prequalification and the time of application or loan closing. (Or, if the loan option is a variable rate loan, then the interest rate index used to set the APR is subject to increases or decreases at any time). Lenders reserve the right to change or withdraw the prequalified rates at any time.
Requesting prequalified rates on Credible is free and doesn't affect your credit score. However, applying for or closing a loan will involve a hard credit pull that impacts your credit score and closing a loan will result in costs to you.