A personal loan can help you consolidate your debt, pay for a vacation or help you finish those renovations on your house. With plenty of financing options on the market today, it can be difficult to determine when you should consider a personal loan and when should you consider an alternative form of financing — like a line of credit or a new credit card. Learn more about common personal loan uses in our guide below and find out if financing your purchase or expense with a personal loan is a good idea.
How can I use a personal loan?
Here are 10 top ways people use their personal loans.
| Purpose | Can you use a personal loan? | What to consider |
|---|---|---|
| Buying a car | Yes | If the vehicle is eligible, you can use it as collateral to get a secured car loan, which usually scores you lower rates. |
| Debt consolidation | Yes | You can use a personal loan to consolidate debt and pay it off faster. |
| Home improvement | Yes | You can use a personal loan for home improvement, and you can also consider a line of credit on your home, which is referred to as a HELOC. |
| Dental bills | Yes | While your dentist may offer discounts and your insurance might cover some, you might be able to finance the unpaid portion by using a personal loan. |
| Vacation | Yes | There are lenders that will you give you an unsecured personal loan to pay for a vacation. |
| Wedding | Yes | Some lenders will lend you money to finance the cost of your wedding. |
| Pet care | Yes | A personal loan can help you pay for unexpected costs that come with being a pet owner, like veterinary bills. |
| Boat or jet ski | Yes | Lenders impose maximum loan amounts that might not cover the total cost of your boat or jet ski. You may have the option of using the boat or jet ski as collateral for a secured loan with a lower interest rate. |
| Going green | Yes | Many lenders are willing to help you foot the cost of becoming energy efficient by offering loans you can use to buy solar panels. |
| Business | It depends | Lenders have different criteria for approving loans for business purposes. Learn more about getting a personal loan for business use or check out our guide on business loans. |
Will my loan purpose affect my application?
How you use your loan can affect your application. For example, if you’re applying for debt consolidation, you may already appear to be higher risk than someone who’s buying an asset, such as a car, or someone who’s investing in their property by doing renovations.
But it depends on how the lender assesses your application’s risk. Ultimately, your eligibility will come down to whether you meet the lender’s application criteria and whether you can afford the loan repayments.
7 tips to improve your chances of approval for a personal loan
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What other credit options do I have to consider?
While a personal loan is a viable option for the above scenarios, you also have other financing options to consider. These include:
- Home equity loans. If you’re undertaking home renovations, using the equity from your home can also be an option. Work out the costs of this as well as a personal loan to see which one would be a better option. You can also use your home equity as collateral to get a secured personal loan, which you can usually use for any legitimate purpose.
- Business loans. If you require a large loan for business purposes, you can compare business lenders offering financing in large amounts. Using a business loan to fund your business is safer than using a personal loan, the latter of which you’d be responsible to pay back should your business fail.
- Credit cards. These can be a good source of ongoing credit and can come with high limits – between $500 and $100,000 – that you can use when you don’t have money on hand.
- Balance transfer credit card. If you have debt across a few credit cards or even a few personal loans, you can consider a balance transfer credit card. Unlike a personal loan, you will be able to find a promotional offer that allows you to pay low or 0% interest on the debt for an extended period of time, usually between three and 12 months.
How to compare personal loans
Consider the following features when comparing personal loan options:
- Loan amount. Check what the minimum and maximum borrowing amounts are and if they meet your needs.
- Loan terms. Some lenders offer shorter loan terms than others. This affects the monthly repayment amount. A shorter term will mean higher repayments, but a cheaper loan cost overall.
- Upfront and ongoing fees. These fees will be added onto your principal loan amount and will therefore affect your repayments and the interest you have to pay.
- Type of interest rate. Your loan can either be fixed or variable, and both of these rates will come with different features and benefits.
- APR. The Annual Percentage Rate incorporates the fees as well as the interest rate to show you the true cost of the loan.
- Repayment flexibility. Check whether you’ll be able to make additional repayments or pay off the entire loan amount early without facing extra fees.
Frequently asked questions
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