What Can a Personal Loan Be Used For?

Personal loans allow you to borrow money and pay it back to a lender, with interest. Most personal loans are unsecured, meaning you don’t need any kind of collateral (such as your home, vehicle, or bank account) to get approved.

Certain personal loans for bad credit might require you to secure the loan with collateral, such as a bank account, a certificate of deposit, or your car.

One of the most appealing aspects of a personal loan is flexibility. You can use it to cover expenses in a wide variety of scenarios. Knowing what you can—and can’t—use a personal loan for can help you decide whether it’s the right borrowing option.

In this guide:

Most popular uses of personal loans
Other personal loan uses
What you can’t use a personal loan for
Where to find personal loans
FAQ

Most popular uses of personal loans

Personal loans are versatile, and many lenders don’t place many restrictions on how you can use them.

Exceptions can exist for using a personal loan to pay for college, start a business, or for investing, depending on which lender you work with.

We’ve researched the most common reasons people obtain a personal loan.

What can you use a personal loan for?	Is a personal loan recommended?
Paying off high-interest debt	Possibly, if the interest rate for the loan is lower than the rate you’re paying on your debts.
Medical expenses	You might consider a personal loan to avoid medical bills going to collections or your healthcare provider doesn’t offer an affordable payment plan.
Home improvements	A personal loan might be preferable to a home equity loan or line of credit (HELOC) if you need to make repairs or improvements but don’t want to tap into your equity.
Emergency expenses	Personal loans can be a less expensive way to borrow than using a high-interest credit card if you don’t have an emergency fund.
Funeral expenses	You might use a small personal loan to pay for funeral costs or cover travel expenses to attend a funeral in lieu of using a credit card or draining savings.
Vehicle repairs or maintenance	If your car breaks down, it can be a nuisance. A personal loan could help you stay on the road when you need repairs or maintenance.
Moving expenses	Moving can be costly, especially long-distance moves. A personal loan could help you cover your expenses while you’re getting settled in a new place.
Vacation	Using a personal loan for a vacation is possible, but it may not be the wisest option if you can pay for travel with accumulated credit card rewards.
Wedding expenses	A personal loan could be a favorable option to paying for a wedding if you know how much you need to borrow. Otherwise, a personal line of credit or HELOC may be a better fit because they allow you to withdraw cash as needed.

Pay off higher-interest debt

If you have high-interest credit card debt, you could use a personal loan to pay off what you owe. Not only could this credit card refinancing strategy lower your interest costs and save you money, but it can make debt repayment much simpler.

Instead of making multiple credit card payments each month, you’d only need to make one payment toward the loan. You may also be able to use personal loans to pay other types of debt, including installment loans or lines of credit.

Just keep in mind that if you’re using a personal loan to pay off credit cards, it’s best to refrain from using your cards to make new purchases. Otherwise, you could end up doubling the debt in the long run.

>> Read more: Personal loan to pay off credit card debt

Medical expenses

Landing in the hospital or coping with an unexpected illness can be expensive. One in 10 Americans has medical debt, with 11 million owing more than $2,000 and 3 million owing more than $10,000.

Health insurance can cover some of the cost, but if you’re underinsured or uninsured, you could end up shouldering a hefty burden for care. A personal loan could allow you to get the treatment you need without delay and pay off your medical expenses over time.

You could also use a personal loan to pay for treatments or procedures not covered by your insurance. For example, most dental plans don’t cover orthodonture. If your teen needs braces to the tune of $5,000, you could get a small personal loan to cover the bill.

Home improvements

If you own a home, you may need to make occasional home repairs. You might get tired of trying to navigate your way around your too-small kitchen and decide to tackle a major renovation project.

You could take out a home equity loan or HELOC to cover expenses. These borrowing options may have lower rates than personal loans. The interest on a home equity loan or line of credit could also be tax-deductible, provided you’re using the proceeds from the loan for home improvements that qualify under IRS guidelines.

	Home equity loan	Home equity line of credit (HELOC)	Personal loan
Borrowing limits	Lenders often allow you to borrow with a maximum loan-to-value ratio of 85%	Lenders may allow you to borrow as much as 100% of equity	$1,000 – $100,000, depending on the lender
Rates	Often fixed, allowing for predictable monthly payments May be lower than personal loan rates	May be fixed, but variable rates that adjust up or down over time are more common May be lower than personal loan rates	Often fixed, allowing for predictable monthly payments May be higher than home equity loan or HELOC rates
Secured by your home?	Yes	Yes	No
Repayment terms	Up to 30 years	Initial draw period of 5 to 10 years Repayment term of 10 to 20 years	12 to 84 months, depending on the lender
Upfront costs	Lenders may require you to pay closing costs	Lenders may require you to pay closing costs	Some lenders charge an origination fee
Tax-deductible interest	Yes, when used solely for home improvements	Yes, when used solely for home improvements	No

A home equity loan or HELOC is a popular way to borrow, but keep in mind that when you borrow against your home using these types of loans, you put your house at risk. A personal loan is not secured by your home.

You may decide you don’t want to incur the costs of obtaining a home equity loan or HELOC—which can include paying for a home appraisal and closing costs on the loan—so a personal loan might make more sense for you.

>> Read more: Best home improvement loans

Respond to an emergency

About one-third of Americans couldn’t cover a $400 emergency in cash. If you’re short on cash for emergency expenses, you could put those costs on a credit card. However, that might mean paying a steep annual percentage rate (APR) if you can’t pay the balance in full right away.

A higher APR could make it harder to make a dent in your balances. You might be repaying that debt for years if you only pay the minimum. With a personal loan, on the other hand, you can repay the debt on a fixed schedule so there’s no guessing about how long it’ll take you to become debt-free.

Many personal loan lenders have a fast application process, with some offering funding as soon as the next day. That’s helpful if you need cash fast when an emergency strikes.

Funeral expenses

The national median cost of a funeral and burial is $7,848, according to the National Funeral Directors Association. If a loved one passes away, the last thing you should worry about is how you’ll pay for their final expenses.

A personal loan could provide the funds you need for funeral expenses and associated costs, such as a cemetery plot, headstone, or memorial service. You might also use a personal loan to pay expenses for yourself and your family to travel for a funeral.

>> Read more: What to consider with funeral loans

Fix or maintain a vehicle

Owning a car can be expensive when you consider all the costs. For example, say you buy a 2023 Honda Accord. Over the next five years, you could expect to pay an additional $16,637:

$3,963 for insurance
$2,519 for maintenance
$1,141 in taxes and fees
$9,014 for gas

Now, let’s say in year four, your beloved Honda breaks down, and you need a new transmission. Your car warranty has run out, so you must cover the cost out of pocket. You might pay $4,000 to $5,000 for the repair.

If you don’t have cash, a personal loan can help you get your car back on the road as fast as possible. You could also use a personal loan for the cost of repairs insurance won’t cover if you’re involved in an accident.

Moving costs

Moving can help you cut your housing costs to have more room in your budget, allow you to find a better space for your family, or enable you to take advantage of new career opportunities.

But you must pay for the move. A full-service move can cost $9,060 on average, but that can be higher if you move a house full of furniture or it’s going a longer distance. Even local moves can cost several hundred dollars.

Personal loans can help you fund a move without pulling cash out of your pocket. Aside from renting a moving truck or storage unit, you could use a loan to buy packing materials, pay deposits at your new place, or cover temporary lodging and travel expenses.

Vacation

Using a personal loan to pay for a vacation might be an unwise financial choice because it means paying unnecessary interest. However, you may be able to borrow at a lower rate than with a credit card.

If you must borrow for a vacation because you’ll otherwise miss something important, such as a family member’s wedding, consider personal loan options. Many lenders offer personal loan amounts as low as $1,000, so you don’t have to borrow more than necessary.

Try to keep your loan balance as low as possible. If you can postpone the vacation until you can pay cash, consider doing so. And don’t forget to apply any accumulated travel miles or points you might have from using a rewards credit card to save money.

>> Read more: Personal loans for vacation

Pay for a wedding

The average wedding cost $30,000 in 2022, according to The Knot. That’s a sizable price tag, but you might be willing to pay it to enjoy your big day the way you want.

Personal loans can cover a variety of wedding expenses, from deposits to rings to flowers. As with a personal loan for a vacation, it’s best to only borrow what you need to minimize the interest you’ll need to pay.

>>Read more: Wedding loans

Other personal loan uses

As we mentioned, you can use a personal loan for almost anything. We’ve researched using a personal loan for many specific expenses. Check them out below:

Personal loans for vehicles

Personal loans for home improvements

Personal loans to buy a home

Personal loans for medical expenses

Personal loans for debt consolidation

Personal loans for investing

Buy Gold or Silver

Personal loans for fun

Personal loans for miscellaneous expenses

What you can’t use a personal loan for

You can use a personal loan for almost anything you want, but most lenders have a few restrictions. The lender might ask in your loan application what you plan to use the money for to ensure you won’t use it for a prohibited reason.

Most lenders forbid using personal loans for:

College tuition: Many lenders don’t want to lend to students for their education because personal loans don’t have the lender protections student loans do. Student loans are difficult to discharge in bankruptcy. Personal loans are dischargeable, so most lenders have decided issuing personal loans to cover tuition is too risky.
Illegal activities: You can’t borrow funds from a personal loan to use in illegal ventures.
Gambling: You can’t take out a personal loan to use the funds at a casino or in other games of chance.
Down payments: If you’re planning to apply for an FHA loan or conventional loan to buy a home, you can’t use a personal loan to borrow money for the down payment. You could, however, use documented gifted funds to make your down payment.
Business expenses: Some lenders may bar you from using personal loan proceeds to fund a new or existing business. You could, however, still use a home equity loan or HELOC for business expenses or apply for a business loan.

Where to find personal loans

You can find personal loans through traditional banks and credit unions, but plenty of online lenders make personal loans too. Depending on the lender, you might be able to check your rates and compare loan terms online without affecting your credit score.

It’s important to shop around for a personal loan to ensure you’re getting the best deal. Finding the lowest interest rate should be your first priority, but you should also consider fees, repayment terms, discounts, and reviews of the product.

We’ve researched lenders to consider. Be sure you meet the credit score requirement before applying for a loan.

The guides below can help you get started:

FAQ

How do personal loans work?

Personal loans work by allowing you to borrow money and pay it back over time with interest. Loan rates are often fixed, and most personal loans are unsecured. Loan terms may range from 12 to 84 months, depending on the lender.

What happens if I use a personal loan for a prohibited reason?

Using a personal loan for a prohibited reason could be considered a violation of your borrowing agreement. You might need to repay the entire loan balance in full. However, once the money is in your bank account, it would be difficult for the lender to know how you spent it. That said, we would never advise using the funds for a prohibited transaction due to the risks.

What credit score do I need for a personal loan?

Most personal loans require borrowers to have good to fair credit, so you might need a score of 620 or better to get approved. It’s possible, however, to get bad-credit personal loans with a lower score, often at a higher interest rate.

Should I take out a personal loan?

Whether you should take out a personal loan can depend on what you need money for and what alternatives you’ve considered. Savings is always the best way to pay since you’re not creating debt.

But a personal loan could be preferable to a high-interest credit card or a home equity loan if you don’t want to borrow against equity.

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