5 reasons to get a personal loan
By Rebecca Lake
Reviewed by Keith Osmun
Apr 12, 2023
Read time: 5 min
Personal loans can help cover emergencies or planned expenses.
Debt consolidation, home improvements, and medical bills are some of the top reasons to get a personal loan.
A personal loan can be a less expensive way to borrow than a high-interest credit card.
They’re called personal loans because your reason for getting one is, well, personal.
A personal loan can help bridge the gap when you're in a cash crunch. Personal loans can put cash in your hands that you can use for just about anything. We'll break down the pros and cons to help you decide whether a personal loan is the right move.
Top reasons to get a personal loan
One great thing about personal loans is that they're flexible. You can get a loan to fit your needs, whatever they might be.
So why do people get personal loans? Here are some of the most common reasons.
1. Debt consolidation or paying off credit card debt
Paying off credit card debt can feel like an uphill battle when your card charges a steep annual percentage rate (APR). Even if you're committed to paying more than the minimum due each month, you might not feel like you're making much progress if a big chunk of your payment goes to interest.
That's where a personal loan can save you money, time, and stress.
You can use a personal loan to pay off those pesky credit cards (or other debts). You might lower the overall cost of your debt by getting an interest rate lower than what you’re currently paying. Lowering the cost can help you pay it off faster.
Not only could you save money by consolidating debt with a personal loan, but you're also streamlining your budget since multiple monthly payments become just one.
2. Home improvements and repairs
Another great use for a personal loan is making improvements or repairs around the house. You don’t have to borrow against your home with a home equity loan or home equity line of credit (although that’s a great option to research if you haven’t yet).
Maybe you've been dreaming of upgrading your kitchen. Or you can’t put off that roof replacement any longer. Getting a personal loan means you can stop putting home improvements and repairs on the back burner.
3. Pay for medical bills
You might use a personal loan to pay medical bills if you need to work out a payment plan, or you'd rather not be in debt to your healthcare provider.
Also, a personal loan is often a more affordable option than in-house financing. For example, say your daughter needs braces to the tune of $5,000. Your orthodontist offers in-house two-year financing at 15.99% APR, but you qualify for a two-year personal loan at 8.99%. Saving almost half of the interest is something to smile about.
4. Emergency or unexpected life events
Life happens, right? And when it does, a personal loan can make it easier to manage financial curveballs.
Here are a few scenarios where you might use a personal loan to cover expenses in an emergency.
Your hyperactive puppy swallows their favorite squeaky toy, and the vet has to operate to get it out.
Your teenage son, who recently got his license, gets into a fender bender, and you need cash to pay your auto insurance deductible.
A storm sends a tree crashing through your roof, and you need $2,500 to cover the deductible before your homeowner's insurance company pays for repairs.
Bottom line, a personal loan can be your financial umbrella when rainy days roll in.
5. Wedding expenses
Seeing your child get married—or walking down the aisle yourself—is something you'll never forget. Treasure the day. A personal loan can help you pay for everything you need to plan a dream wedding.
Reasons not to take a personal loan
Technically, you could use a personal loan to pay for almost anything. But is there anything you shouldn't use a personal loan for?
It's really up to you what you do with a personal loan. But most financial experts will tell you that you shouldn't use personal loans for things like:
Investing. Investing borrowed money is risky because you still have to repay the loan even if the investment doesn't pan out.
College. Personal loans aren’t usually the best option for college since federal student loans are the cheapest way to borrow. Some personal loan lenders don't allow you to use loan funds for higher education.
Wants. Taking out a personal loan for things you want but that are beyond your means is a good way to end up in a debt trap. Research studies show that saving up in advance for a luxury purchase like a vacation results in greater happiness and satisfaction in the experience, so try to enjoy the anticipation and avoid borrowing for the want.
Pros and cons of a personal loan
Here are some of the top personal loan pros:
Personal loans are usually fixed-rate loans, so you’ll know your total cost of borrowing up front.
Fixed rates usually mean fixed payments, which makes it easier to plan your budget around repaying a personal loan.
You might be able to borrow more money with a personal loan than a credit card and get a lower APR.
Approval and funding are usually quick. For example, some lenders can offer a 24 to 72-hour turnaround window for funding.
Personal loans are usually unsecured, meaning you don't need to pledge anything of value to get the loan.
Here are some personal loan cons:
The lowest interest rates are usually reserved for people with the highest credit scores.
Most personal loan lenders charge an origination fee or other fees, which adds to your cost of borrowing.
Lenders may limit how you can use personal loan funds.
Comparing different personal loan options is a good place to start. It also might be a good idea to talk to a professional loan advisor about the specifics of your situation.
Frequently asked questions
Do you have to disclose why you want a personal loan?
Yes, lenders usually ask you your reason for wanting a personal loan, either when you get a rate quote or submit a full application. They want to know that you’ll use the loan funds for an approved reason. Some lenders limit what you can use a personal loan for.
Do you need good credit for a personal loan?
Actually, good credit is optional for all personal loans since some lenders cater to borrowers with fair or poor credit. Having good credit can give you an edge, though, since approval and lower rates might be easier to get.
What are some alternatives to a personal loan?
Homeowners can consider a home equity loan or home equity line of credit (HELOC). Your home equity is the difference between the home’s current market value and what you still owe on your mortgage. Other borrowing options include credit cards or personal lines of credit. Payday and title loans are costly and not considered part of a good financial strategy.