What Are Personal Loans Used For?

If you're wondering, “What can I use a personal loan for?” the answer is almost anything.

A personal loan is a lump sum of money you borrow from a lender, bank or credit union and repay in fixed monthly payments over a set period of time. Each payment includes a portion of the principal, which is the amount you borrowed, and interest, which is the cost of borrowing. Many personal loans have a fixed interest rate, which means your monthly payment amount stays the same throughout the repayment term as long as you make your payments on time.

You might apply for a personal loan when you need money to help pay for an unexpected expense or a planned purchase or to consolidate multiple debts. Whether a personal loan fits your needs depends on your situation and what you’re trying to accomplish. Some lenders may also set certain limits on what a personal loan can be used for.

Understanding how a personal loan works — and knowing what it can and can't be used for — could help you decide if it's the right choice for you.

What can you use a personal loan for?

Personal loans are flexible. If approved, you can typically use it to cover many different expenses, such as:

• Emergency expenses
• Home and car repairs
• Large purchases, like appliances
• Weddings
• Moving costs
• Debt consolidation
• And more

Consolidating and paying down debt

One of the most common reasons people take out a personal loan is debt consolidation, which generally means combining multiple debts into one loan with a single monthly payment. You can combine several different types of debt, including credit card debt and personal loan debt. Debt consolidation loan payments are typically fixed and there’s a set end date, which can make them easier to budget for.

Whether consolidating your debt saves you money depends on multiple factors, like the interest rate of the new loan and its repayment term, which is how many months or years until the new loan is paid off. In some cases, for example, you may have a lower monthly payment but over time, a later end date. This means the total amount of interest paid adds up and may be more. If you're wondering whether debt consolidation might make sense for you, a debt consolidation calculator can help you see how consolidating may affect your monthly payment and repayment timeline.

Emergency and unexpected expenses

Sometimes your budget can’t stretch far enough to cover an unexpected need. A personal loan may be one way to help cover costs when you need money fast. Examples include urgent household expenses or other unexpected bills.

A personal loan can help you cover those expenses right away and repay them over time, with predictable monthly payments and a clear payoff timeline.

Home and car repairs

When something essential breaks down, waiting until your next paycheck to make the repair isn't always an option. A personal loan for home improvement could help cover home-related expenses, such as fixing HVAC issues, plumbing problems or roof damage, so the bill will be paid upfront with the proceeds of the loan, and you will not have to deplete your savings.

If you have enough equity in your home, you may be able to get a home equity loan or a home equity line of credit (HELOC) for these expenses. Equity is the difference between the market value of your home and the amount left to pay off your mortgage. However, borrowing against your home equity may take longer to arrange and does carry the extra risk that comes with using your home as collateral to get the loan. Both home equity loans and HELOCs are secured by your home — meaning the lender could take it from you if you can’t repay what you owe.

You can also use a personal loan for auto repairs, such as engine issues, body damage or other problems that are too costly to pay for all at once.

Paying bills or covering short-term expenses

A personal loan may also help you manage multiple ongoing bills, build in some financial breathing room or bridge a gap when your budget falls short. For instance, if utility bills, rent or other recurring expenses become difficult to pay because your income fluctuates, you’ve lost your job or find yourself with more costs than you can comfortably manage, a personal loan may be helpful.

It’s important to remember that a personal loan creates a new repayment obligation. Before borrowing to cover ongoing bills, make sure that the monthly payments for the loan will fit into your budget over the full repayment period.

Large purchases or planned expenses

Some people use personal loans to spread out the cost of larger, planned expenses over time.

• Vacations: A vacation loan can help cover travel-related costs like flights, hotels, car rentals and meals, so you can book your trip now and repay the loan over time.
• Weddings: A wedding loan can help cover ceremony and reception costs. Reviewing the average wedding cost can help give you an idea of how much you may want to borrow.
• Moving expenses: A moving loan can help cover costs like hiring movers, renting a truck or covering deposits on a new place.

Whether a personal loan makes sense for a planned expense depends on your individual circumstances and how comfortably the payments fit into your budget.

What personal loans can't be used for

While personal loans are flexible, there are certain expenses they cannot cover. At OneMain, personal loan funds may not be used for:

• Postsecondary educational expenses, such as college, university or vocational expenses
• Business or commercial use
• Buying cryptocurrency or investments, such as stocks or mutual funds
• Gambling
• Illegal purposes

Personal loans aren’t substitutes for student loans, mortgages, home equity loans or dealership auto purchase loans. Those loan types are designed for specific purposes and come with their own terms, protections and eligibility requirements.

What do you need to apply for a personal loan?

The requirements to get a personal loan vary by lender. You can estimate whether you’re eligible for a loan — and if so, what terms you might get — by prequalifying first. Prequalification usually only takes a few minutes, and it doesn’t affect your credit score. Prequalifying with a few different lenders can help you compare offers. It’s important to know that while prequalifying can give you an idea of what you might qualify for, it isn’t a guarantee of approval.

You may also want to decide ahead of time whether you want to apply for an unsecured or secured personal loan. Secured loans are backed by something of value you possess, called collateral, such as a vehicle. If you default on a secured loan, the lender has the right to take possession of the collateral to recover the amount you owe. Unsecured loans don’t require collateral. A secured loan may offer a lower interest rate or higher borrowing amount than an unsecured loan.

When you’re ready to apply, the lender will typically review:

• Personal information: You’ll need to provide proof of identity, such as a government-issued ID.
• Credit history: You’ll be asked to authorize a hard credit check to let the lender review your credit history.
• Proof of income: Pay stubs, tax returns, bank statements or W-2s may be requested to confirm you have the means to repay the loan. Some lenders give you the option to let them securely log into your bank account to verify your income instead.
• Collateral: For secured loans, the lender will evaluate the condition and age of your collateral and request proof of ownership and insurance, if needed.

After approval, most personal loan lenders typically transfer funds to your bank account within three business days, and sometimes even the same day.¹

At OneMain, it may take as little as one day to get a personal loan, depending on your circumstances. Factors that may affect the timing of the processing of your loan application include but are not limited to:

• When you submit your application
• What documents are necessary
• How long it takes for OneMain to review those documents

If you plan on using your bank-issued debit card to receive funds, money could be deposited to your account as soon as an hour after signing the loan agreement documents.

---

---

Choose a personal loan that works for you

A personal loan may be used for a wide range of needs, from managing unexpected expenses to covering planned purchases. Begin by checking for prequalified offers, then before moving forward, take time to review the loan terms and make sure you understand your repayment responsibilities.

Sources

1 https://www.bankrate.com/loan/personal-loans/how-long-does-it-take-to-get-a-personal-loan/