Can You Take Out a Personal Loan for Rent?

If you’re finding it harder and harder to make your rent, you’re not alone: In 2023, almost half of renting households in the U.S. spent more than 30% of their income on housing. With rent being such a huge expense — and a necessary one — it can be incredibly stressful if you’re struggling to pay.

If you’re short on cash, you may be wondering if you can take out a personal loan for rent. While the answer is yes, doing so isn’t ideal. Before taking out a loan for rent, consider the costs and potential alternatives.

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Can I get a personal loan for rent?

You can get a personal loan for rent, but it’s not usually the best idea.

Personal loans can be used for a variety of purposes, including everyday expenses like rent. If short-term financial trouble has left you without enough cash to pay your rent, a personal loan could offer a lifeline until the crisis has passed. 

On the other hand, taking out a personal loan for rent can be expensive, as you’ll have to pay interest (and possibly fees) on the amount you borrow. Missed payments could hurt your credit score. Also, if you have serious underlying problems with your overall financial picture, using a personal loan to cover rent could be similar to treating a heart attack with an aspirin. 

However, if you’re in a temporary bind, taking out a personal loan is a possible solution. Just make sure you understand the financial implications.

Types of personal loans for rent

There are two main types of personal loans: secured and unsecured personal loans. You can use either type for rent, but they have unique features to consider.

Secured personal loans

A secured personal loan is an installment loan you secure with collateral. Collateral is generally a valuable asset, such as a home, car, or bank account. When you secure a loan, you give the lender the right to seize your collateral if you fail to pay back the debt. 

Secured loans have added risk for borrowers but less risk for lenders, which could translate to lower interest costs. With personal loans, the cost of borrowing is typically expressed as APR, or annual percentage rate. Personal loan APRs include not only interest rates but also upfront lender fees, such as origination fees.

Unsecured personal loans

An unsecured personal loan doesn’t involve collateral. These loans, also called signature loans, are guaranteed with your signature, not an asset. With an unsecured loan, lenders typically base their approval on factors including your creditworthiness, income, and employment status — but not on the value of any collateral. 

If you don’t have good credit, it can be harder to qualify for an unsecured loan. These loans also tend to have higher interest rates compared to secured loans.

Pros and cons of using a loan for rent

Using loans for rent can have benefits, but it’s important to weigh them against the downsides of this strategy.

Pros

• Fast funding: Some lenders can fund personal loans as soon as the same day you apply, which could come in handy in an emergency.
• Cheaper than credit cards: If you’re tempted to use a credit card to cover rent, a personal loan may be more affordable. According to the Federal Reserve, the average interest rate on two-year personal loans is 11.66% APR, compared with an average rate of 21.37% APR for credit cards. 
• Fixed interest: Most personal loans have fixed interest rates, so you’ll know how much the loan will cost ahead of time. This also means you’ll have consistent monthly payments, which are easier to work into your budget.
• Can help you build credit: Taking out a loan and making on-time payments can help you build credit over time. And building your credit can help you qualify for even better loan terms in the future.

Cons

• More debt: “A lot of people won't take into account the new debt payment,” says Barbara Quan, AFC, Founder and Empowerment Specialist at Moneyology. “If the new payment is not affordable, then the loan is not a good idea since you will find yourself owing rent and potentially owing your bank.”
• Fees: In addition to interest, personal loans may come with fees. Common examples include origination fees and late payment fees. 
• Risk of credit damage or loss of collateral: If you’re unable to make a personal loan payment, you may face serious consequences. For example, your credit will take a hit, and if your loan is secured, you could lose your collateral.
• High loan minimums: Depending on how much rent you need to cover, taking out a personal loan could be overkill. Some lenders have minimum loan amounts of around $5,000. If you only need a fraction of that to cover a month of rent, you might overpay for what you need.

Rent assistance and other programs

If you’re experiencing long-term difficulty covering rent, a personal loan may only add to your financial burden. Instead, you can explore rental assistance programs. Below are some resources to help cover rent and other essentials:

• 211: Dialing 211 connects you with local social services, including rental assistance programs that can help you pay your bills. You can also visit 211.org to learn more. 
• Housing Choice Voucher Program: This federal program helps subsidize rent in the private market. To find out if you’re eligible and learn how to apply, visit the U.S. Department of Housing and Urban Development’s website. 
• Utility assistance: Though it doesn’t directly help with rent, utility assistance can help you lower your monthly bills and give you more room in your budget. The Low Income Home Energy Assistance Program (LIHEAP) can help cover costs of utility bills, weatherization, and energy-related repairs.
• Other charitable organizations: Beyond government-sponsored programs, there are plenty of charitable organizations that offer rental assistance, such as The Salvation Army, Catholic Charities USA, and other local or regional charities.

How to get a personal loan for rent

If you decide to use a personal loan for rent, these are the steps you can take to get one: 

1. Check your credit score and credit report: Check your credit score for free using Credible's free credit-monitoring tool. Knowing your score can help you see how it measures up to a lender's minimum requirements. You can also check your credit report at AnnualCreditReport.com to make sure it doesn’t contain any errors that might be affecting your score.
2. Compare lenders: Knowing where your credit stands, compare loans based on eligibility requirements, interest rates, fees, and customer satisfaction. If you need rent money as soon as possible, you should also pay close attention to lenders’ funding times. 
3. Prequalify: If possible, prequalify with several lenders to get an interest rate estimate. While prequalifying for a personal loan doesn’t involve a hard credit pull, moving forward with an application typically does. Also note that prequalification isn’t a loan offer, and rates and terms may differ when you apply.
4. Apply: When you settle on a loan, fill out the lender’s application and submit any required documentation. Often, this involves your Social Security number, proof of income, proof of address, and more.
5. Review and sign the loan agreement: If the lender approves your application, you’ll receive a loan agreement to review. Make sure you’re clear on any fees, your interest rate, the loan term, and monthly payments before signing.
6. Wait for funding: The time it takes to fund a personal loan varies by lender. Many lenders can often fund loans within a few days of approval (and some can fund them the same day). Often, you’ll receive funds through direct deposit. 
7. Start repaying your loan: As soon as you receive your loan, make a plan to repay it. Set up automatic payments or put due dates in your calendar. Missing a payment can have serious consequences on your credit score, which can make it harder to borrow — or even rent — in the future. 

Alternatives to taking out a loan for rent

Taking out a loan for rent isn’t ideal, and sometimes, there are better options. Consider the following alternatives to taking out a personal loan for rent:

• Negotiate with your landlord. If you haven’t yet spoken to your landlord, start there. Explain your situation and ask about payment plans, waiving late fees, or an extension on your next payment. 
• Move to a cheaper place. One of the perks of renting is the ability to move with relative ease. Consider moving to a less expensive place, whether it’s smaller or farther out of town, to save on rent.
• Get help from family or friends. If you can’t qualify for a loan or want to avoid the administrative hassle, you might ask for a loan from friends or family. Before accepting their help, create a written agreement that outlines the terms of the loan. 
• Consider rental assistance programs. If you’re really struggling, there are resources available to help. Look for rental or utility assistance programs in your area online or by calling 211.