Should You Use Personal Loans for Rent?

Borrowers can use personal loans for nearly any expense, including rent. As rent prices continue to surge, you might consider a personal loan to cover the cost of rent, especially if you’re dealing with unexpected expenses or unemployment. 

However, personal loans aren’t usually the best solution. Here’s everything you need to know about using a personal loan for rent, including better alternatives. 

Should you consider a personal loan for rent?

The market is tough for renters, and personal loans might seem like a solid option for paying housing costs on time, especially as a record number of renters are “rent-burdened” and spend nearly 30% of their income on rent. 

Even though the market makes it hard for renters, there are better solutions than personal loans.  

Why we don’t recommend personal loans for rent

A personal loan can be a valuable financial tool, but it’s not always the right option. As a general rule, personal loans are helpful for temporary or one-time expenses, like consolidating debt, paying for a wedding, or affording a large medical bill.

Here’s why we don’t recommend personal loans for rent. 

Repayment length

Personal loan repayment terms are usually between two and seven years, so you’ll repay your rent costs for multiple years. Consider this example where you get a $5,000 loan to cover the cost of rent for two months.

Detail	Amount
Loan amount for two months’ rent	$5,000
Interest rate	10%
Repayment term	36 months
Monthly payment	$161.34

Repaying two months of rent for multiple years doesn’t make financial sense, especially when you have additional bills to pay.  

Rent is due again in 30 days

Affording rent is a long-term problem because it’s an ongoing expense. Personal loans are most effective for short-term issues like renovations, weddings, or medical bills. Even if you use a personal loan to cover rent for a few months, the underlying problem of affording rent still exists. 

If you use a personal loan to cover a one-time expense, the underlying issue disappears once you repay the loan since the expense no longer exists. However, rent continues since payments are due every 30 days. Because of that, you need a sustainable, long-term solution to afford it. 

Extra costs due to interest

The interest rate for a loan is the cost of borrowing the money. Personal loan interest rates usually range from 7% to 30%, which can add up quickly. 

Consider this example of using an $8,000 personal loan to cover four months of rent. Even if the monthly payment seems affordable, it doesn’t account for the total loan cost. The interest charges make it more challenging to justify the loan.

Detail	Amount
Monthly rent payment	$2,000
Personal loan amount for rent	$8,000
Loan repayment term	36 months
Loan interest rate	11%
Monthly loan payment	$261.91
Total loan interest charges	$1,428.75

More financial stress

Loans can amplify financial stress, especially if you’re already struggling to pay bills. An additional monthly payment can make catching up on your expenses harder. According to a survey from Capital One, 73% of Americans cite money as their primary source of stress. 

Juggling bills and other financial responsibilities can be challenging. That’s why minimizing debt—especially for recurring expenses like rent—can help reduce financial anxiety. 

Impact on credit score

Applying for a personal loan can temporarily lower your credit score due to a hard inquiry from the lender. Even though your score will bounce back, it might take a while. 

A lower score can be a dealbreaker if you’re trying to move to a cheaper rental since landlords typically review applicants’ credit scores. Having late or missed loan payments can also lower your credit score.

It’s important to learn about the rules and laws protecting renters. The state you live in may have programs available to you depending on why you have a financial hardship in the first place. 

Natalie Slagle

CFP®

What to consider instead of a personal loan for renting an apartment 

We recommend considering these alternatives to a personal loan to cover rent. 

Emergency rental assistance programs

Emergency rental assistance programs often serve as a go-to financial helping hand during times of immediate need. 

Unlike a personal loan, these programs provide assistance, often in the form of grants you don’t need to repay. However, competition for such programs can be quite high, and qualifying standards may be strict.

Negotiate with your landlord

This strategy requires candid communication to determine potential arrangements, such as reduced rents or deferred payments. This method eliminates interest rates and loan fees. However, you’re reliant on your landlord’s willingness to cooperate.

Borrow money from friends and family

Acting as an informal form of personal loan, borrowing from friends or family carries emotional risks alongside financial ones. This option may not involve interest rates or traditional loan fees, but failure to repay can strain personal relationships.

Local community & religious organizations

Community and religious organizations often provide support in financial distress. Unlike a personal loan, these organizations might give aid freely or under a pay-it-forward system, but the availability and amount of aid can be erratic.

Government subsidies and vouchers

These resources can provide long-term assistance. A major advantage is the possibility of consistent support, but you must qualify under specific criteria.

Credit counseling and debt management plans

Unlike personal loans, these tools focus more on managing debt than incurring new debt. These plans take time and discipline but can lead to better financial habits.

Earn extra income or reduce other bills

Picking up a part-time job or side hustle or opting for income-based loan repayment if you have federal student loans could be proactive alternatives. It requires more effort and time than a personal loan but could also bring more stability.

Hardship withdrawal from a retirement account

As a last resort, you might consider this option. Unlike a personal loan, it taps into funds you’ve already saved but at the cost of future financial security.

Cut nonessential expenses

Similar to earning extra income, this option requires a lifestyle change rather than obtaining a loan. The obvious advantage here is less money spent, but this might not always be feasible.

Ask the expert

Natalie Slagle

CFP®

You may be surprised by what type of solution you can come up with simply by approaching your landlord and explaining your financial situation. They may be able to reduce your rent, get you out of your lease (in hopes of a smaller rental payment going forward), or another unique offering to help you during financial hardship.

How proactive financial planning can help you avoid personal loans for rent

Not being able to afford rent or other essential expenses is stressful. But you can take steps to improve your finances and avoid personal loans for rent. Here’s how. 

Create a budget

Budgets allow you to plan for expenses, including rent. You probably know how much most of your monthly bills cost, but you might not know the total cost. Once you know your total expenses, you can create an accurate plan for your finances and prioritize essential bills. 

List each expense, including rent, electricity, transportation, Internet, cell phone, groceries, debt payments, and other recurring costs. Your budget is simply a list of your expenses. You can create a plan once you know how much money you need. 

Earn more money

As living expenses increase, you might need to earn more to pay your monthly bills. Consider whether you can apply for a higher-paying job or take on a part-time gig for a few hours per week. Earning more money is not always possible, but it’s often worth a shot. 

Build an emergency fund

An emergency fund is a savings account for unexpected expenses. For example, imagine you’re laid off and can’t afford rent for a few months. If you have an emergency fund, you can cover the expense with your savings from your savings account. 

Building an emergency fund can take time, but you can start small. Set aside $20 to $50 at the beginning of each month. If you can save more, that’s a bonus. 

Reduce your living expenses

Consider whether you can reduce your living expenses, especially rent or other large bills. Moving and other changes come with additional fees, like security deposits, so calculate the costs compared to the savings. If the savings outweigh the costs, then go for it.