What Can Personal Loans Be Used For?

Personal loans are one of the more flexible ways to borrow money. Although some lenders have limits on what you can use the money for (typically, expenses like home payments, car payments or tuition payments) you can pretty much use the money for whatever you need.

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1. Debt Consolidation

If you're paying off several different loans and credit cards, you can get buried under the interest payments for all of your debts. Debt consolidation allows you to roll all of your debts into one lump sum. Then you can pay towards all of your debts once a month and, potentially, save a lot of money in interest.

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.

4. Car Repairs

Rather than paying the repair cost upfront, possibly draining an emergency fund, you can borrow capital from a lender.

5. Education Expenses

For some people, student loans won't cover much more than tuition. You’ll likely have to buy textbooks, software, computers and more as part of education expenses. While these expenses can add up, a personal loan may make them more manageable.

6. Wedding Costs

While total expenses depend on your location, the venue and other factors, you may 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 or Emergency Expenses

If you need to make a large purchase at the last minute, say your refrigerator or washer needs to be replaced and you don't have enough in your emergency fund to cover it, a personal loan can help you out.

8. Tax Debt

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. 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. Starting a Small Business

If you have a business idea, but need some more money to get it off the ground, a personal loan is a great place to start.

10. 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

It's best to avoid a personal loan if:

• You already have a lot of debt

• You're trying to finance a risky investment or a non-essential purchase

• You don't know how you'll pay back the loan

FAQs

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 it's usually for expense like car and tuition payments.

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.