Top 5 Reasons to Get a Personal Loan
You can use a personal loan to pay for almost anything, including debt consolidation and home improvement projects.
Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
Personal loans can be used for almost any expense, including debt consolidation, home improvement projects, large purchases and emergencies. Personal loans may be advertised specific to their use — home improvement loans, travel loans or medical loans, for example — but they function the same way.
The best way to use a personal loan is to reach a financial goal, such as consolidating high-interest debts or financing a home improvement project that adds value to your home. Compare personal loans with other financing options to find the one that best fits your plans and budget.
» MORE: The best personal loans
5 reasons to get a personal loan
Personal loans break up large expenses into smaller, easier-to-manage monthly payments over the course of a few years. The most common reasons for a personal loan include:
Debt consolidation or refinancing.
Home improvement projects.
Medical bills.
Life events and discretionary expenses.
Emergencies.
1. Debt consolidation or refinancing
If you carry multiple forms of debt, you can use a personal loan to consolidate it. A debt consolidation loan combines unsecured debts like credit cards and medical bills into one payment, ideally with a lower annual percentage rate. This approach saves you money and can help you pay off the debt faster.
A similar reason to get a personal loan is to refinance an existing loan. It works the same way as a debt consolidation loan: If your credit and income have improved since you first got the loan, you can refinance it at a lower interest rate to save money and pay off the debt faster.
Consider whether the new loan comes with any fees, like an origination fee, that would offset your savings.
2. Home improvement projects
You can use a personal loan to fund a home improvement project, like a new roof or kitchen remodel.
Unlike home equity financing, personal loans don’t require your home as collateral. Loans are usually funded within a week of approval and some lenders offer extended repayment terms for home improvement loans.
» MORE: Best home improvement loans
3. Medical bills
Personal loans can be used to cover medical, dental or other health care costs, like an emergency procedure, fertility treatments, costly out-of-network charges or a high deductible. Borrowers can also use a personal loan for cosmetic surgery.
» MORE: Best medical loans
4. Life events and discretionary expenses
Most financial experts don’t recommend using a personal loan for discretionary expenses, but some big-ticket life events may require outside financing.
For example, a wedding can cost more than $30,000, and not every couple can pay outright. Wedding loans are one way to cover the difference.
A big vacation can add up, too. Though fly now, pay later payment plans are becoming increasingly popular, traditional vacation loans are another option to cover a dream trip.
Some expenses you may choose to use a personal loan for are:
Weddings.
Vacations.
Funerals.
Furniture.
Technology devices.
Adoption or family planning procedures.
5. Emergencies
If you need to fund an emergency, a personal loan can see you through. For example, if your car breaks down, you might need to borrow money to cover repairs and the cost of a temporary vehicle rental.
Look for small personal loans with a maximum APR of 36% and monthly payments you can afford, and plan to repay your loan as soon as possible.
Personal loans are typically a better choice than a payday or pawnshop loan, both of which can charge triple-digit interest rates. However, long-term, interest-bearing debt may not be your only option in a crisis.
Personal loans from our partners
What personal loans can’t be used for
Here are three expenses that personal loans usually can’t cover:
A home down payment: FHA programs and many lenders prohibit the use of personal loan proceeds for a down payment on a home. Taking out a personal loan also adds to your debt-to-income ratio, which may make it difficult to get favorable terms on a mortgage. Consider down payment assistance programs or a family loan instead.
College tuition: Many personal loan lenders prohibit using their loans for educational expenses. Instead, public and private student loans are designed to help pay for college tuition. They have longer repayment periods, often at lower rates than personal loans.
Starting a business: Some lenders prohibit using personal loans to start a business. If you are starting a business, consider a small-business loan from the Small Business Administration or another lender.
When to consider — and when to avoid — getting a personal loan
A personal loan could be a fitting option for you if:
You can afford the monthly payments throughout the life of the loan.
Your credit score is good or excellent (in the mid 600s or higher), increasing your chances of getting a low interest rate.
You’re using the money for something you need which you can’t put off and save up for instead.
On the other hand, you might want to reconsider getting a personal loan if:
You only qualify for a high-interest loan (those with interest rates above 36%).
You won’t be able to afford the loan payments each month.
You have cheaper borrowing options.
The loan is for something nonessential that can be delayed.
Even if you’re using a personal loan for an approved reason, it may not be the best way to borrow. Always consider cheaper options, and make sure you can comfortably afford the monthly payments.
What to look for in a personal loan
Here are features to compare as you shop for the best personal loan.
Costs
Annual percentage rate: A loan’s APR represents its total cost, including the interest rate and additional fees. Personal loan APRs typically range from 6% to 36%. Use the APR to compare one loan with another or with other financing types, such as credit cards.
Monthly payment: Check the loan’s expected monthly payment against your budget to be sure there’s room for it. You can use a personal loan calculator to see what rate, loan amount and term will get you the most affordable monthly payments.
Fees: Several lenders charge late fees, and some may charge origination fees. An origination fee is included in your APR, but many lenders take it from the loan funds, effectively reducing your total loan amount.
» MORE: Pros and cons of personal loans
Repayment terms
Personal loan repayment terms generally range from two to seven years. A loan’s repayment term affects the monthly payment and total interest charges. Shorter-term loans have higher monthly payments but lower interest costs. Look for a repayment term that keeps payments manageable but saves you as much on interest as possible.
Loan amounts
Many lenders offer loan amounts from $1,000 to $50,000, while others provide loans of up to $100,000. Decide how much you need before shopping around so you can rule out some lenders.
Additional features
If you have multiple competitive offers, compare other loan features such as funding time and whether the lender offers hardship assistance or a mobile app to make managing your account easier. Finding a lender that tailors its loan to your needs could break the tie.
» MORE: How to get a personal loan
on NerdWallet
on NerdWallet