A personal loan can help with all types of expenses. Banks won’t typically verify how you plan on using the funds, and as long as you qualify, you can receive the capital that you need. While some ideas like travel expenses may come to mind, there are some subtle ways you can use personal loans to strengthen your finances. This guide will explore some of the ways you can use personal loans. Before getting started, make sure you check out some of the personal loan choices below.
MoneyLion offers a service to help you find personal loan offers based on the info you provide, you can get matched with offers for up to $100,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you. You can also use the loan funds to pay off other existing debts.
13 Ways to make use of personal loans
You can use a personal loan to cover almost any expense. Here are some of the most common ways a personal loan can be useful.
1. Debt consolidation
Using a personal loan for debt consolidation is a clever way to improve your finances. You can end up with a lower interest rate and break your debt into reasonable monthly payments by consolidating debt. Using a personal loan to wipe away your credit card debt can also improve your credit. Additionally, you can bundle many smaller financial obligations into one personal loan with lower monthly payments.
Debt consolidation only works if you can get a personal loan with a lower rate than your current debt. It’s also important to consider fees, as high fees can cancel out the benefits of a lower rate.
2. Home improvements
Do you have to renovate your kitchen, bathroom, or any other part of your house? A personal loan may give you enough capital to improve your home. You might be able to stretch out your loan and add more years to the backend if you want lower monthly payments. This personal loan is an investment into your house that can increase its value and let you tap into more equity.
3. Medical expenses
Medical expenses can add up in a hurry, and not everyone has enough time to save up for them. A personal loan can quickly give you the funds you need to cover an urgent expense. You can then pay the personal loan back over time. It may make your medical bills more manageable.
4. Car repairs
If you get into an accident, someone hits your parked car, or it needs a part repaired, a personal loan can help. Some repairs can get expensive. Rather than paying the repair cost upfront, possibly draining an emergency fund, you can borrow capital from a lender to pay for the repair and make monthly payments on the balance.
5. Education expenses
You’ll likely have to buy textbooks, online software, computers, and other resources as part of education expenses. While these expenses can add up, a personal loan may make them more manageable. Rather than coming up with all the cash upfront, you can create a payment plan by taking out a loan. A student loan may be the best option for educational expenses, but a personal loan is a viable option.
6. Wedding costs
Most weddings cost 5-figures. While total expenses depend on your location, the venue, and other factors, you will end up with a big bill after your special day. A personal loan can give you the required funds to cover wedding costs upfront so you don’t have to postpone your big day until you and your partner have enough funds.
7. Large purchases
Some products and services go away after a few days or weeks. Some people go into bidding wars over expensive items, while other purchases are large even without a deadline. Even without urgency, some products like iPhones will always be expensive. Personal loans can give you the necessary funds to make these purchases so you don’t have to wait until your savings are high enough.
8. Tax debt
You don’t want to get into tax debt. The IRS can seize your assets. If you don’t have the cash to cover your tax debt, a personal loan can help. Opting for a longer term might make it easier to cover the monthly payments while you wipe away your tax debt. This approach only improves your finances if the personal loan’s rate and fees are lower than the tax debt’s rate and fees.
9. Travel expenses
Vacations can get expensive, but you may not have all the money in your bank account right now to fund your vacation. Sometimes, it’s better to go on the trip now instead of waiting until you save enough funds on your own. An older family member may not have much time left or the kids may be heading off to college. When time is of the essence, a personal loan can help you afford a great vacation sooner.
10. Starting a small business
Many businesses need capital to start operations. Initial investments can produce tremendous results if your business becomes successful, but you need the capital to get started. More than 25% of business owners use loans and credit cards to get their ideas off the ground.
11. Emergency expenses
Some expenses require immediate attention. You can take out a personal loan to cover these types of expenses if necessary.
12. Buying a new vehicle
A personal loan can help you buy a new vehicle. You’ll have an easier time getting the funds and can make reasonable monthly payments. Every vehicle needs a good insurance policy, and this is one of the top choices to consider if you want to save money and get great coverage.
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13. Moving costs
A personal loan can even help with moving costs. It can cost thousands of dollars to load your belongings in a truck and have them hauled to your new property. Not everyone has enough savings to cover this expense, but banks may have extra capital readily available to help with your move.
What you should not use personal loans for
While personal loans are great financial products, it’s not always the right time to use them. Consumers with high debt shouldn’t be looking at personal loans due to higher rates and digging a deeper hole. It’s better to pay off your existing debt rather than take out a new financial product. It’s also a good idea to avoid a personal loan if you want to use the capital for a risky investment or a non-essential purchase.
A personal loan also may not be the best choice if you do not have a stable income source or aren’t sure how you will pay it back. Missing loan payments will hurt your credit score and increase your fees. It’s best to take out a personal loan for an essential expense when you are in a financial position to afford the monthly payments. It’s a good resource just in case, but it shouldn’t become a normal part of your finances.
Use a Personal Loan for Any Purchase
You can use a personal loan for almost any purchase. Lenders won’t verrify how you intend to use the money as long as you fulfill the loan’s requirements. However, just because you can use a personal loan for just about any purchase doesn’t mean you should rush to the bank each time you need extra cash.
Trimming your expenses, growing your income, and ignoring non-essentials can strengthen your finances and make you less reliant on personal loans. That way, these financial products are readily available when you need them the most.
FAQ
Can I use a personal loan for anything?
Yes, you can use a personal loan for just about any expense. Some lenders have a few restrictions.
Can lenders restrict what you use a personal loan for?
Lenders can restrict what you use a personal loan for, but this is rare and doesn’t cover many types of expenses.
What can be used as collateral for a personal loan?
Many personal loans are unsecured which means they do not have collateral. However, you can use a house, car, or any other asset as collateral for a secured personal loan.
