6 smart uses for personal loans

Your goals are within reach, and a personal loan could help you make your dreams a reality. A personal loan is a powerful tool because you could use one for almost anything. Loan amounts typically range from $1,000 to $100,000, and repayment terms last from one to 15 years. That's a lot of built-in flexibility.

A reality check on your own borrowing plans is a smart step to take before you apply for a personal loan. Here are a few ideas for using a personal loan wisely.

What can you use a personal loan for?

A personal loan is a lump-sum loan, usually unsecured, that you repay in fixed monthly installments. You can put the money toward almost any personal expense.

Some smart uses include:

• High-interest debt consolidation

• Home improvement projects

• Professional certifications or training

• Medical procedures and bills

• A job relocation or big move

• Travel booked and paid for in advance

While personal loans can be used for a lot of things, not every move is a wise one. Let's look at when these could be good strategies and when you might need a different approach.

1. Pay off high-interest debt

Credit card debt with high interest rates can feel like a life sentence. You pay and pay, and your balances hardly go down. That's usually because credit cards carry higher interest rates than many other types of debt, and their minimum payments tend to be low. Too low to make much of a dent in your balances.

Debt consolidation with a personal loan could help you break free of that—and pay off your balances faster.

• Average personal loan interest rates run roughly 10 percentage points lower than average credit card rates. When less of your payment goes toward interest, you could pay down your balance faster.

• You choose your loan term. You'll know exactly when your loan will be paid off.

• Personal loan interest rates are usually fixed. Credit card interest rates are usually variable, which makes the cost of the debt less predictable.

Debt consolidation works best when you stop adding to your credit card balances. This may mean addressing how you got into the credit card debt to begin with so you can avoid more card debt once you consolidate.

2. Make home improvements

Personal loans can be great for home improvements. You might make your home more comfortable, efficient, secure, or valuable.

You could also use a home equity loan or a home equity line of credit (HELOC), but both of those options require that you are a homeowner with sufficient equity to borrow against. Equity is the difference between your home's value and how much you owe on the mortgage. If you don’t repay a home equity loan or HELOC, you could risk losing your home.

Personal loans are usually unsecured, so you don't have to own anything that you could borrow against. You also don’t have to worry about foreclosure if you fall behind on payments.

3. Pay for training or certification

Student loans are typically the best option for college tuition, but they don't often cover other types of training or continuing education. Could a weekend seminar, professional development class, or certification course help you earn more money?

Personal loans could make sense to cover education when you're not in college or graduate school and you need to cover costs student loans won't touch. Plus, student loan applications can take weeks to process, while getting a personal loan is usually a simpler process.

One thing to keep in mind is that personal loans don't include the protections that federal student loans do. Personal loans work best for costs that traditional student loans can't cover.

4. Cover medical procedures

There are times you might have to pay for medical care up front, and it can be expensive.

• For non-emergency medical care, providers may require payment up front.

• You may have to pay in advance for out-of-network care or procedures not covered by your plan.

• If your health insurance plan has a high deductible, you may have to cover all or most of it at once for a bigger procedure.

• You may have to pay in advance for cosmetic surgery.

• If you're uninsured, you may be asked to pay up front for care.

• You may be able to get a discount if you pay up front.

• If you go out of the country for a medical procedure, expect to pay for it at the time of service.

Sometimes, a healthcare need isn't technically an emergency, but you don't want to wait. A medical loan could help you leap back into your life sooner.

5. Fund a job relocation or big move

We move for a lot of reasons, and not all of them wait until that move is in the budget. Maybe you got a new job but the company won't cover your moving costs. Perhaps a life change, like a divorce, means starting over in a new place.

Whatever the case, moving can be expensive. A personal loan could help you spread out the cost of the move across a couple years of monthly payments. Not only is this typically cheaper than carrying the balance on your credit card, but it can also give you a set payoff date so you're not carrying those moving costs well after you've unpacked.

6. Travel hack

Booking and paying for travel in advance could save you money. And if you coordinate a personal loan with a rewards credit card, you could save even more. Here's a hypothetical example of a package European cruise vacation deal for a family of four:

• Regular fare: $20,198

• Promotional fare: $10,099

• Promotional extras: Free drinks, including alcohol, free dinner voucher, one free day trip, free WiFi, total value $400.

If you book and pay a year ahead, you could save half the cost of the package, plus $400 in extras that you won't have to pay for a la carte. That's at least $10,499 in savings for booking the trip now compared to waiting.

But vacation loans aren't free, and a rewards credit card could earn you points. Which one is better? Let's break it down, and we'll assume that you're willing to commit to paying off the loan before the vacation begins, because that's more fun than facing payments for a trip that's over.

Personal loan

Let's say you get a personal loan for $10,700 at 12%, which gives you a little room for incidentals. The lender charges a 5% fee for making the loan. That leaves you with $10,165, which is enough to purchase the cruise.

To clear this debt in a year, the monthly payment is $951. You'll repay a total of $11,412.

Credit card

You decide to use your rewards credit card to charge $10,700 in trip expenses, which currently has a 23.99% APR and gives you three points per dollar spent on travel.

To clear this debt in a year, you need to pay $1,012 per month. You'll repay a total of $12,144. The purchase earns you 32,100 points and you redeem them for a statement credit for $321 (one cent per point). This brings your total down to $11,823. A credit card still costs you an extra $411 compared to using a personal loan.

What a personal loan usually can't be used for

Most lenders set limits on a few uses of a personal loan. Loan agreements commonly rule out these purposes:

• College tuition and existing student loans

• A down payment on a home

• Business expenses

• Investments or cryptocurrency

• Gambling

Lenders typically spell out these limits in the loan agreement, so check the terms before you apply.

The best use for a personal loan

No matter what your financial goal is, match the repayment term to your use for the money. A five-year loan to add 10 years of life to your roof makes sense. A five-year loan for a weekend away may not be a good fit.

If you decide a personal loan fits your needs, compare loan terms carefully to get the most from your money. Get quotes from at least three lenders so you can see what options are out there. Choose lenders that use a soft inquiry for prequalification so you can check rates without hurting your credit score.

Ready to explore your options? Find out if you qualify through Achieve Personal Loans.