10 reasons to get a personal loan

Personal loan interest rates are often lower than credit card rates, and they provide a predictable monthly payment and fast funding — sometimes the same day you apply. While you’ll need to qualify to get a personal loan, these financial products can help you meet other goals. That’s because you can use them for just about any purpose, including the following 10 popular reasons.

10 reasons for personal loans

Personal loans’ fixed rates and stable monthly payments may be more budget-friendly than other types of debt. Quick funding is also a plus if you’re facing an unexpected expense you need to pay for right away. Before shopping for a personal loan, consider these 10 reasons it might be a good fit for you. Be sure to weigh personal loan pros and cons before you make a final decision.

1. Debt consolidation

Debt consolidation is one of the best reasons for taking out a personal loan. Instead of making payments on multiple other loans or credit cards, you can combine them into a single loan with one monthly payment. The interest rates are fixed, making your payment predictable compared to variable credit card rates, and you have a definite payoff date because personal loans are paid in equal installments.

Rhys Subitch, a senior editor of consumer lending at Bankrate, got a personal loan to consolidate their credit debt and was able to reduce their monthly payment by half — even with paying extra toward their debt each month.

“I chose a five-year term, but have been paying more than the amount due each month to chip away at the debt a little more,” they say. “I’m also set to pay off my debt much sooner than if I had kept trying to pay down the credit cards.”

With the average personal loan interest rate just above 12 percent (compared to 21 percent average credit card rates), you could save hundreds or even thousands of dollars. This can help you pay off your credit debt faster — good news for the 46 percent of credit cardholders who report carrying a credit card balance, according to Bankrate’s Credit Card Debt Report.

I was tired of juggling three payments and APRs over 20 percent, and a personal loan helped me avoid that.

— Rhys Subitch Bankrate senior editor, consumer lending

High credit card APRs can keep you in debt much longer, especially if you only make the minimum payment. You’ll also pay thousands more in interest. Consider the following example: You have two credit cards and a total balance of $12,000. By paying off those cards with a debt consolidation loan, you’d save money each month, pay off your debt significantly sooner and save more than $15,500 in interest charges.

This information was calculated using Bankrate’s personal loan calculator and the credit card minimum payment calculator, assuming the minimum payment is calculated using interest plus 1 percent of the balance.

2. Home improvement projects

Homeowners who don’t want to borrow against their home’s equity can use a personal loan for home improvements. It’s also a good fit for borrowers who lack sufficient equity to obtain a home equity line of credit (HELOC) or home equity loan.

Finance writer Kat Tretina used a personal loan to cover the cost of updating her backyard, including the installation of a new fence and landscaping. “I considered using a credit card, but with the high APRs on credit, I decided against them and opted for a personal loan instead,” she says.

While the loan funded her yard project without sky-high rates, she does warn that the ease of access to personal loan funds can make it tempting to borrow more than you need.

Personal loans make it easy to take out a lump sum, and it can be tempting to borrow more than you strictly need. That can lead to unnecessary spending (or you might start thinking about other renovations you could make!) and added interest charges. Have a budget for your home renovations and stick to it.

— Kat Tretina Personal finance writer

3. Emergency expenses

Borrowers often turn to personal loans to cover emergencies. Some lenders even offer same-day funding if you apply early enough on a weekday. That can make it a good match for a surprise medical bill or expensive car repair without depleting your savings account.

Emergency personal loans are much faster alternatives to home equity financing if you have a household crisis, such as a burst water pipe or a roof leak. Since the loan isn’t secured by your home, the approval process is much faster.

You may opt to split the cost of an emergency expense between a personal loan and your emergency savings account. You may sleep better knowing you still have some cash in the account and will have a smaller personal loan balance to pay off.

4. Medical bills

In 2024, more than 31 million Americans — even those with health insurance — needed to borrow money to pay for healthcare, according to a survey from West Health and Gallup. Collectively, this group borrowed about $74 billion.

If you have medical debt, especially from multiple sources, you could use a personal loan to consolidate and repay the debt. The interest rate on the loan may be lower and offer more flexibility. A personal loan could also be used to cover upcoming procedures.

Before borrowing, weigh all of your options for paying your medical bills, including negotiating with your provider, researching payment plans, appealing to your insurance company and seeing if you’re eligible for financial assistance.

5. Vehicle financing

A personal loan may be a good alternative to secured financing to buy a car, boat or RV. You’ll avoid qualification issues that may come with used vehicles, and can usually prequalify in seconds. You can also choose terms similar to car lenders, ranging from one to seven years.

Since the loan isn’t approved based on the price of the vehicle, you can also borrow extra to pay for extras like road hazard kits, boat storage and maintenance fees. And most personal loans are unsecured, which means the vehicle won’t be at risk of repossession if you can’t repay the loan.

6. Payday loan alternative

Using a personal loan instead of a payday loan may save you hundreds of dollars in interest charges if you need some extra cash before your next paycheck. Personal loans also give you more time to repay the balance, with terms generally ranging from 12 to 84 months.

Payday loans have short repayment terms, usually by your next payday, or between two and four weeks. This quick turnaround time often forces borrowers to renew the loan if they can’t repay it by the due date.

The annual percentage rate (APR) for a payday loan can be as high as 400 percent, depending on your state laws. But the maximum interest rate on a personal loan is typically about 36 percent. You can see how the two compare by using a personal loan calculator to see the difference in interest costs.

7. Moving costs

If you don’t have the cash to cover the cost of supplies, movers or a rental truck, a personal loan may be a cost-effective way to finance moving expenses. Even cross-country vehicle transportation can potentially be covered by a personal loan.

Using a personal loan for moving costs can also help you stay afloat while you wait for your first paycheck after a job relocation. This could enable you to retain your savings for utility deposits, grocery stock-ups or cleaning supplies for your new home.

8. Large purchases

If you need several thousand dollars to pay for items like a washer and dryer, four new tires on your car or a new laptop for work or school, a personal loan may be worth considering. Though you’ll have to pay interest and potential fees, you can avoid depleting your savings or using your credit card.

You can even make several large purchases at once and budget for them with one fixed-rate personal loan payment. For example, you could use a personal loan to replace multiple kitchen appliances during a remodel.

9. Wedding expenses

The average wedding costs about $33,000, according to The Knot’s annual Real Weddings study. If you don’t have that kind of cash saved up, a wedding loan can give you the funds to cover the costs now and repay them later.

A personal loan can be used to pay for big-ticket wedding costs like the venue and catering, or for smaller expenses like flowers, photography, the cake or a wedding coordinator.

But remember that a luxury wedding is a want, not a need. Don’t let your vision of the perfect day drive you to borrow more than you can afford to repay. And make sure you have the money and marriage talk before the big day to make sure you’re on the same page about wedding spending and future finances.

10. Vacation costs

Vacations can easily cost thousands of dollars, depending on how many travelers are in your party and where you’re planning to stay. A personal loan may give you the funds to splurge on a honeymoon, go on a trip to Europe after you graduate or celebrate a special anniversary getaway.

However, we generally recommend against using vacation loans. This kind of debt can weigh your budget down for years after your vacation is nothing but memories. Instead, consider saving up money in a high-yield savings account over time. It may take longer to make your trip a reality, but you’ll also be able to enjoy it without the weight of debt.

Bottom line

Personal loans give you the flexibility to finance small expenses or significant projects with very little qualifying paperwork. They are also helpful in a cash crunch, with money available in most cases within a business day of approval.

An added perk: You don’t need to risk losing your home or car since most personal loans are unsecured. A personal loan may be worth considering if you receive a consistent paycheck and have room in your budget for a set payment over the next several years.

Frequently asked questions

Does the reason for taking out a personal loan matter?

The loan’s intended use does matter to most lenders. While you can use a personal loan for almost anything, there are some restrictions.

Most personal loan lenders won’t let you use a personal loan to pay for business expenses or college tuition. You also may not use your loan for gambling or illegal purposes. Speak with your lender about any restrictions before borrowing.

What are the downsides of a personal loan?

When considering this financing option, it’s important to make sure the perks of a personal loan outweigh the downsides. For example, while a personal loan may have lower interest rates than a credit card, it may have a higher rate than a home equity loan.

While a personal loan may not require collateral, you may have to pay an origination fee as well as other fees. Another disadvantage is that you’re taking on more debt and increasing your debt-to-income ratio, which can affect your chances of getting other funding, like a mortgage, in the future.

What kind of personal loan alternatives exist?

If you aren’t sure this type of financing is the right option for you, there are a few different alternatives to a personal loan. These may include:

• Credit card

• Home equity loan

• Cash-out refinance

• Buy now, pay later

• Peer-to-peer lending

Whether one or any of these alternatives work better for you will depend on how much you wish to borrow, when you need the money and how fast you can pay the loan back. Consider these before choosing a different option.