With the exception of loans from a few niche lenders, like Payoff, most personal loans can be used for any purpose. Personal loans come in a few common categories.
Debt consolidation
Debt consolidation is when you pay off several debts with a new personal loan, then pay off the personal loan through monthly payments.
Who it’s best for: Personal loans for debt consolidation are best for people who have several high-interest debts, generally through credit cards.
What to watch out for: Look carefully to make sure the debt will cost less in the long run. Don’t consolidate debt unless you can get a better interest rate, and check to make sure any fees don’t add costs to the loan.
When to get started: If you have several high-interest debts, generally through credit cards, and can qualify for a lower interest rate with a personal loan, you may want to consider it.
How to get started: Evaluate what debts to consolidate and how much money you could save on interest rates, then get quotes from debt consolidation lenders.
Emergency expenses
Unexpected expenses like a car repair or hospital bill can throw off your monthly budget, and a small personal loan can alleviate the immediate cost.
Who it’s best for: Anyone dealing with a large emergency expense who doesn’t have the option of rainy day savings or a payment plan to pay for it without putting it on a high-interest credit card.
What to watch out for: A loan will cost more because of interest rates, so it’s best to avoid getting a loan unless it is absolutely necessary. Look for the lowest APR you can qualify for, and don’t take out a large loan than you need. If possible, see if there are other options before getting a loan.
When to get started: If there’s an emergency and you need a significant amount of funds in a short time, get started as soon as you know that a personal loan is the best option for you.
How to get started: Apply for loans with lenders that you qualify for, especially considering lenders with quick payments after you are approved so you can handle the emergency as soon as possible.
Home renovations
A personal loan may be a great way to pay for a large home renovation project and boost the equity in your home.
Who it’s best for: People who can make home renovations that will increase the home’s value and can make the payments on the loan without financial hardship.
What to watch out for: The goal is to increase your financial stability, so don’t get a loan with high APRs or fees that will outweigh possible benefits.
When to get started: Apply for a loan once you determine how much you need by getting estimates from contractors. You don’t want to apply for more or less than you need, so you should have a good idea of what to expect first.
How to get started: After you have project estimates, look for lenders that will offer you low APRs.
Major purchases or events
Personal loans are often used to cover major expenses, such as a wedding or vacation.
Who it’s best for: Anyone who needs to make a large purchase.
What to watch out for: It’s not generally a good idea to take on a lot of debt, especially for something that only lasts for a short period of time. It’s better to save up or cut expenses than to be paying for something with added interest for years afterward.
When to get started: If you have determined that a personal loan is the best way to go, apply for the loan by the deadlines you would need for the major event or when you plan to make the large purchase.
How to get started: Shop around with different lenders to find the best option for what you have in mind for your purchase or event.
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