What Can I Use a Personal Loan For?

Consolidate your debt, build your credit, and more

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A personal loan allows you to quickly access a bit of cash with few strings attached—as long as you make your monthly payments.
But as you shop for one, you might ask yourself: What can I use a personal loan for? Technically, you can use a personal loan for just about anything. But some uses may be more advantageous than others—and some are downright risky.

Consolidate Debt

If you have racked up a significant amount of debt on your credit cards, a personal loan can be a good way to make paying down that debt more manageable. This is one of the most common uses for personal loans—and for good reason.

  • A single, set payment

  • Potentially lower interest rate

  • You could rack up more debt

Pros explained: You can use a personal loan to pay off several other loans, leaving you with just one loan and one monthly payment, and fixed loan term means you’ll know exactly when you will be debt-free. You might also qualify for a personal loan with a lower interest rate than what you have on your existing debt, so you can save money in the long run.

Cons explained: Using a personal loan to pay off credit card debt usually means you have more credit available to spend. If you’re not disciplined, you can easily rack up more credit card debt before paying the personal loan off.


A balance transfer credit card allows you to move balances from multiple cards to one new card, often with a lower, introductory interest rate for a limited period of time. Additionally, if you have a retirement plan, you may be able to borrow money against your balance to consolidate debt.

While it is an alternative, taking a loan from your 401(k) or IRA could result in severe tax penalties, so it’s not really advised.

Build Your Credit

If you have a limited credit history, it may be hard to qualify for high-dollar loans like a home mortgage. A personal loan can be an attractive option to start building a credit history through fixed, on-time payments.

  • Easier to qualify for

  • Helps diversify your credit

  • Can ding your credit score

Pros explained: While mortgages often come with strict credit requirements, personal loans are much more flexible for smaller dollar amounts. There are even personal loans for people with bad or no credit. Credit scores consider the types of debt you carry. Adding an installment loan like a personal loan can help your score if you only have revolving credit like credit cards.

Cons explained: A new personal loan could ding your credit score by creating a new credit inquiry on your report or by adding to your overall debt.

While you can get a personal loan without great credit, the bank may say you still need a co-signer in order to secure it if you don’t have much credit experience or a high income.


Banks and credit unions have many cheaper options for people looking to build a credit profile. Share secured loans are offered by many banks and credit unions and use the balance in your savings account, money market account, or certificate account to secure the loan. Secured credit cards allow you to deposit a certain amount into a bank, then access a line of credit equal to the cash on hand.

Supplement Student Loans

Your federal student loans might not cover all the expenses you run into while in school. A personal loan may help you make ends meet while you earn your degree.

  • No restrictions on use

  • Fewer protections

Pros explained: Personal loans generally don’t require you to spend the money on any particular thing, meaning they can fill whatever gap you face.

Cons explained: You’ll need to start paying back a personal loan right away, while student loans often allow you to make payments based on your income or defer portions of your payment until after graduation.


If you’re considering a personal loan to cover expenses while in college, you generally will be able to find better options.

Federal student loans through government programs typically have the lowest costs. Private student loans are typically more expensive than federal loans but come with many of the same features. They are intended to help supplement federal student loans.

And if you're working on paying back your student loans, you could use a personal loan to help pay back that debt, but it may not be right for everyone's financial situation.

Start a Business

It takes money to get a new business off the ground, and a personal loan can help you get going.

  • More flexible for sole proprietors and new businesses

  • Your own money and credit are at stake

Pros explained: Personal loans are easier to secure than business loans because the latter often requires you to provide a business plan and financial history of your business.
Cons explained: Many business loans put your business assets at risk. With a personal loan, your own money and credit score are at stake—not your company’s.


While it’s not a first choice, personal credit is fairly common to use while starting a business. However, it’s worth exploring other options first. Loans from lenders through the federal Small Business Administration can help you get your small business off the ground. The SBA, as well as Grants.gov, also offer a wealth of grants for veterans, women, tech entrepreneurs, and other groups of people, too. Additionally, many banks have business credit cards for new and small businesses. These may come with low, introductory rates or rewards, too.

Make Home Improvements

If you’re looking to add a new room to your home or buy a new HVAC system, you might consider turning to a personal loan.

  • Easy to access

  • Your home isn’t at stake

  • Higher interest rates than alternatives

Pros explained: If you are in need of an urgent home repair, a personal loan may be one of the fastest ways to get the cash you need. You can usually get your money within one or two business days. Plus, some alternatives include loans backed by your home, meaning you could lose it to foreclosure if you don’t make your payments. With a personal loan, you don’t face that risk.

Cons explained: Personal loans typically come with higher interest rates than home equity loans, which could eat away your home improvement budget.


Depending on the scope of the project, you may consider taking on cheaper debt. Home equity loans let you access the equity built up in your home, typically at low rates. A cash-out refinance involves taking out a new mortgage for a higher amount than you currently owe and then taking the balance in cash, which you can then use for whatever you want.

FHA Title I loans are also an option for those who qualify. They allow you to receive between $25,000 and $60,000 for home improvements to single or multi-family homes, even if you do not have equity. However, this type of loan may only be used for projects that substantially improve the livability of the home.

Make a Large Purchase

If you’re in the market for an expensive item like a wedding ring or wedding, honeymoon, or home furnishings, a personal loan can quickly get you the cash to purchase it.

  • Making memories

  • Your future financial options are at risk

Pros explained: Personal loans give you a flexible way to have the wedding or vacation of your dreams—even if you don’t have the cash up front—and finance it over time.

Cons explained: Taking out a personal loan to cover a fleeting event is a serious undertaking. You could be starting your married life with a large amount of debt or put yourself at a disadvantage when applying for a mortgage down the line.


Think carefully about how much you can afford to spend before taking out a loan of any type. Though more expensive, your credit limit on a credit card could encourage you to spend less and more within your means. And if you’re disciplined, you could simply save up enough money to pay for that wedding ring or vacation without taking on debt.

The Bottom Line

Personal loans are often easy to apply for, quick to receive, and come with flexibility in what you spend the money on. But taking on any type of debt is not something to take lightly. Before you pull the trigger on a personal loan, be sure to carefully evaluate your alternatives and how much each costs.