Should I Get A Personal Loan? 15 Factors To Consider

Personal loans can cover a wide range of costs – from consolidating high-interest debt to paying medical bills to funding home improvements. While there’s no single “best” reason to get one, the most common uses fall into two categories: managing existing debt or paying for large, necessary expenses you can’t cover with cash.

1. Debt consolidation

Debt consolidation allows you to combine multiple debts into one loan with a single monthly payment. You could use a personal loan to pay off high-interest credit cards, medical bills, or other debts. This can simplify your finances and potentially save you money on interest.

2. Home improvements

Making home improvements or repairs can boost your home’s value. While many homeowners use a home equity loan or HELOC, these require using your home as collateral. An unsecured personal loan lets you fund renovations without risking foreclosure if you can’t repay.

3. Medical expenses

Medical bills can add up fast, especially if you’re uninsured or underinsured. According to the Census Bureau, 27.1 million people in the U.S. don’t have health insurance. Before borrowing, try to negotiate medical bills with your provider.

Personal loans can cover various healthcare costs, including:

• Emergency room or urgent care visits
• Orthodontic services and dental surgery
• Eye surgery
• Cosmetic procedures
• Weight loss surgery
• Ambulance or air transport charges
• Veterinary emergencies for pets

4. Emergency expenses

An emergency fund helps cover unexpected costs like job loss or medical emergencies. According to an Empower survey, 37% of Americans would have difficulty paying a $400 emergency expense. If you’re still building your savings, a personal loan can help you handle urgent costs.

5. Wedding costs

Weddings are major milestones that can come with major price tags. According to Zola, the average wedding costs $36,000, though you could spend more on a larger event. A personal loan can cover everything from attire and rings to catering, photography, and even your honeymoon.

6. Moving costs

Moving for a new job, school, or first home comes with steep costs. According to Moving.com, the average local move costs $1,400, while long-distance moves average $5,450. A personal loan can cover moving expenses and settling-in costs like security deposits without draining your savings.

7. Vehicle repair

Having your car break down can be a headache if you rely on it to get to work, school, or run errands. If you don’t have cash to pay for a new transmission or replace worn-out tires, a personal loan can help close the gap. You might also consider a personal loan if you can get better terms than a traditional auto loan.

8. Funeral costs

The loss of a loved one is stressful enough without the burden of paying for funeral expenses. According to the National Funeral Directors Association, the national median cost of a viewing and funeral is $8,300. If your loved one didn’t leave a life insurance policy, a personal loan or funeral-specific loan can help cover these costs.

9. Business expenses

Starting a business requires upfront capital for expenses and living costs while you build revenue. Many business loans require at least one to two years in operation and $50,000+ in revenue to qualify. A personal loan may be easier to secure when you’re just starting out. Just make sure the lender allows you to use the loan for business purposes.

10. In vitro or adoption expenses

Building your family through IVF or adoption comes with significant costs. According to FertilityIQ, cumulative IVF costs can reach the $40,000 to $60,000 range. A personal loan can help cover these expenses, including procedures, attorney fees, and travel costs.

11. Federal and state taxes

If you’ve filed your tax return but have a balance due, you’ll generally need to pay by the due date to avoid penalties and interest. Unpaid federal tax debt can result in a federal tax lien—the government’s legal claim against your property. A personal loan could help clear any tax obligations to the IRS or your state revenue department.

12. Divorce expenses

Getting divorced can be just as expensive as getting married, especially in contentious disputes. If your attorney advises against using joint assets or credit lines until the divorce is finalized, a personal loan can cover your expenses in the interim.

Personal loans offer flexibility, but lenders have restrictions on how you can use the funds. Some financial institutions prohibit using personal loan money for:

• Illegal activities: You can’t use borrowed money for anything against the law.
• Investments: Lenders typically don’t allow funds for stocks, cryptocurrency, or other investments.
• Post-secondary education: Federal student loans are often a better option for covering college costs.
• Home down payments: Mortgage lenders want to see your own money, not borrowed funds.
• Gambling: Personal loans typically can’t be used for betting or paying gambling debts.
• Business startup costs: Some lenders require dedicated business loans instead.

Restrictions vary by lender, so it’s a good idea to check specific terms before applying.

There are many good reasons for a personal loan – and a few scenarios where you might want to think twice about getting one.

A different kind of loan might be better

Sometimes other loan types offer better terms for specific needs. Federal student loans typically beat personal loans for education costs with lower rates and flexible repayment options. Similarly, auto loans usually offer lower rates for vehicles, and 0% APR credit cards can save you interest if you can pay off the balance during the promotional period.

You’re stuck with high interest rates

Taking out a personal loan could be a mistake if you’re subject to a high interest rate and could get a different type of financing with a lower APR. For example, home equity loans can offer low rates and affordable payments if you choose a longer repayment term.

You can’t afford the monthly payments

Keep the monthly payments on a personal loan in mind to determine whether it fits your budget. If the payments are too high, you could fall behind. Late or missed payments can cause serious damage to your credit scores.

You’re borrowing for wants rather than needs

Personal loans work best for necessary expenses or debt consolidation, not discretionary spending like vacations. Taking on debt for wants can create unnecessary financial stress. If you do borrow for non-essentials, make sure you can comfortably afford the payments and understand the long-term costs.

Personal loans can help you meet various financial needs, from consolidating debt to covering unexpected expenses. Taking time to compare loan rates and terms can help you find the best option for your budget and credit situation. Learn more about getting a loan with bad or no credit.