5 Smart Reasons To Take Out a Personal Loan, According to an Expert
These days, keeping your finances on track can feel like a constant juggling act. With rising costs, fluctuating interest rates and the unpredictability of the job market, it’s no surprise that people are exploring personal loans as a practical option.
While borrowing money isn’t something to take lightly, under the right circumstances, a personal loan can offer stability, flexibility and even long-term savings. We spoke with Andrew Lokenauth, money expert and owner of Fluent in Finance, to discuss some reasons taking out a personal loan might make sense in today’s economy.
1. Interest Rates Are Usually Lower Than Credit Cards
From his experience as a financial advisor, Lokenauth has noticed several compelling reasons personal loans are becoming a smart move in today’s economic climate. One of the biggest perks? Interest rates on personal loans tend to be lower than those of credit cards.
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As of January 2026, interest rates for personal loans start at around 6% with an average around 13%, while the average credit card APR reported is 23%. However, the rate for a personal loan will depend upon some factors, like your credit score.
2. Debt Consolidation
Debt consolidation is probably the most strategic use of personal loans right now. According to LendingTree, 48.7% or borrowers take out a personal loan in order to consolidate their debt or refinance credit cards.
Lokenauth has helped clients combine multiple high-interest debts into a single, lower-interest payment. “One of my clients saved about $300 monthly just by consolidating their credit card debt into a personal loan with a 10% rate,” he said.
3. Fixed Interest Rates
Fixed interest rates are another huge benefit in this uncertain economy. With inflation still being a major issue, locking in a fixed rate means your payments won’t increase.
According to Lokenauth, that predictability is super valuable when everything else seems to be getting more expensive. There are, however, some variable rate personal loans out there, which come with “additional risks,” per Debt.org. So be sure to know what type of loan you’re getting before you commit.
4. Home Improvements
“Home improvements can be a smart use of personal loans right now,” Lokenauth said. Property values are still relatively high in most areas, so strategic renovations could boost your home’s value.
Lokenauth typically suggests focusing on kitchens and bathrooms, as they tend to give the best return on investment (usually around 70% to 80% of project costs).
5. Business Expansion or Side Hustles
Using personal loans for business expansion or side hustles could make a lot of sense too. With recession fears looming, having multiple income streams is crucial, per Lokenauth.
“The key is making sure the potential return significantly exceeds the loan cost. I aim for at least a 2x return on any borrowed money used for business purposes,” he said.
Important Considerations Before Taking Out a Loan
Lokenauth was quick to point out that your credit score matters more than ever.
“I’ve seen rates vary by 5-7 percentage points based on credit scores. Getting your score above 720 can save you thousands in interest over the loan term,” he said.
That said, try to shop around extensively. Keep in mind that different lenders have wildly different rates and terms right now. “I always tell my clients to get at least 5 quotes — the rate differences can be shocking. Online lenders often offer better rates than traditional banks,” Lokenauth said.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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