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. 

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. 

• According to the Federal Reserve, average personal loan interest rates in 2024 are around 10 percentage points lower than average credit card interest 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. 

Consolidating debt works best if you stop carrying credit card balances. 

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, 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. 

Personal loans are usually unsecured, so you don’t have to own anything that you could borrow against. 

3. Pay for education

Personal loans offer more flexibility than student loans. 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 or you need money faster. Student loan applications can take weeks to process, while getting a personal loan usually takes just days. 

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 have to pay in advance for cosmetic surgery.

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

• Paying up front could get you a discount.

• 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 can help you leap back into your life sooner. 

5. Pay for a wedding or other big day

One frustrating thing about weddings, especially if you choose a popular day or sought-after venue, is that you generally have to pay in advance. Sometimes, way in advance. Facilities, caterers, bakers, and florists typically want deposits of at least 50%, and you might have to come up with it even a year ahead of time. 

A personal loan could help you nail everything down. Keep the loan term as short as you can afford. Your memories should last a lifetime, but your wedding loan should not.

6. Travel hack

Booking and paying for travel in advance can pay big dividends. And if you coordinate the personal loan with a rewards credit card, you could save even more. Here’s a real-world example of a package European 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%. 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 $961. You’ll repay a total of $11,530.

Credit card

You decide to use your rewards credit card, 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 $1,033 per month. You’ll repay a total of $12,397. The purchase earns you 30,297 points and you redeem them for a statement credit for $302 (one cent per point). This brings your total down to $12,095. Using a credit card still costs you an extra $535 compared to using a personal loan.

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, borrow wisely and get the most from your money.