Editor's choice: SoFi personal loans
- Low starting APR at 5.99%
- No fees
- Unemployment protection available
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A good bit of your 20s are spent learning to take care of yourself in the real world. You might have taken on a full-time job, joined the gig economy, hustled your way through graduate school — or some combination of the three.
A personal loan can help when you’re just starting to build a solid financial future. But don’t be too quick to sign on the dotted line.
A personal loan can help you pay down debt and invest in yourself when you’re just starting out. The extra cash could remove barriers to an exciting career opportunity, returning to school and other life milestones.
You’ve landed a great job offer, but it’s all the way on the opposite coast. Maybe you’ve fallen in love with someone who lives a thousand miles away, or just want to see a new part of the world.
You might have a successful side hustle you’re looking to expand or a killer idea you’re willing to personally invest in. While some lenders offer startup financing, a personal loan could be a competitive option if you have strong personal credit and enough income to cover personal costs while getting your new enterprise off the ground.
If credit card debt is weighing you down, consider applying for a debt consolidation loan. Consolidation moves your existing debt into a term loan, ideally at more favorable rates. It can provide a path out of credit card debt and help you save over the long term if you’re extended a low APR.
Medical students, lawyers and anyone else who’s maxed out student loans might want to consider a personal loan to cover their costs. Personal loans can also help you pay for a bar exam or relocate for a medical residency if you can’t find a private student loan.
Student loans often come with competitive rates and in-school deferment options that you just won’t find with personal loans, however. While it might keep you from dropping out, a personal loan should be a last resort.
Your credit score matters more than you might think. Yes, you need good credit to get a good deal on a credit card or mortgage. But some employers — and even landlords — look at your credit score when you apply for a job or an apartment.
If you’ve never carried debt, consider a credit-builder loan. Offered by many local banks and credit unions, these loans don’t typically allow you to access the funds until you’ve paid off the loan.
Already have a credit history but want to improve it? Taking out a personal loan can help improve your credit with responsible, on-time payments.
A personal loan may not be the best idea for all situations. Before signing a contract, look into alternatives that can help you meet your financial goals.
In an emergency, a personal loan can help you cover the cost of monthly bills. But you could end up in more debt than you can handle if you continually rely on loans to cover your general living expenses. Consider making a budget to cut back on personal spending, crowdfunding for help or reaching out to your support systems — friends, family or even benefits programs — before you borrow.
Traveling can be a life-changing experience. But taking out a loan might not be the best way to see the world in your 20s. If you’re bitten by the travel bug, consider work-away programs, travel deals from companies like Groupon or good old-fashioned saving.
That $5,000 rug might tie the room together, but digging into debt for unnecessary items puts you at financial risk. That’s because you’re paying interest on an already expensive item, costing you more in the long run. Unless it’s something you absolutely need, consider saving up for it instead.
Not all 20-somethings have poor credit, but chances are good that you won’t qualify for the strong rates and generous terms you might get on a loan 10 years down the line.
A few reasons for less competitive loans:
A personal loan can help you lay down the groundwork for building a strong and happy future — like moving to a new city to start a dream job. But borrowing more than you can handle could seriously hurt your personal finances and limit your future options.
Learn more in our guide to personal loans to know how to weigh benefits and find a lender.
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