What Can Personal Loans Be Used For?

What is a personal loan?

A personal loan is a type of loan that lets you borrow a lump sum of cash, which you then pay back in monthly installments. For that reason, they are categorized as installment loans.

Be aware that rates, terms and loan amounts vary among personal loan companies. This means you’ll want to shop around and compare options before you apply.

Personal loans offer more predictable financing than credit cards or lines of credit, as they come with a fixed interest rate, a fixed repayment period and a fixed monthly payment amount.

There are two types of personal loans:

• Secured personal loans: Require collateral, such as a car or savings account, to back the loan. Because they are less risky for lenders, they often have lower interest rates.
• Unsecured personal loans: Do not require collateral, but typically have higher rates and stricter approval requirements.

» READ MORE: What to know before taking out a personal loan

How can you use a personal loan?

Personal loans can work well for large expenses that you need time to pay off. You can use a personal loan for nearly any purpose, from fertility treatment to adoption expenses, a wedding or even your dream vacation.

While the list of ways to use a personal loan is nearly endless, most fall into several common categories. Below is a detailed breakdown of typical uses, with examples.

Debt-related uses

Personal loans are often used to manage or consolidate debt. Examples include:

• Debt consolidation: Using a personal loan for debt consolidation makes sense if you can get a lower interest rate than you’re currently paying. Personal loans also have fixed payments and a set repayment plan that lets you know exactly when you'll become debt-free.
• Credit card payoff: You can pay off multiple high-interest credit cards with one loan to simplify payments and potentially lower interest.
• Medical debt: A personal loan can help cover past medical bills, reducing interest accumulation and simplifying repayment.

Home-related uses

Loans can help with renovations, repairs and furnishing your home:

• Home renovations: You can use a personal loan to pay for home renovations, such as a new kitchen, an upgraded bathroom or a room addition on a home you already own.
• Appliances and furniture: Personal loans can cover large home purchases, such as new appliances or furniture, without draining your savings.
• Landscaping and exterior upgrades: Improve your home’s appearance or functionality with outdoor projects.

Personal and family expenses

Loans can fund life events or family-related needs:

• Weddings: Wedding loans are fairly common due to the high costs of getting hitched these days. According to The Knot, the average cost of a wedding came was $33,000 in 2025.
• Adoption expenses: With the average cost of international adoption ranging from $20,000 to $50,000, taking out a personal loan to pay for adoption can make sense. However, note that the IRS offers an Adoption Tax Credit up to $17,280 per adopted child.
• Fertility treatments or other major life events: A personal loan can help cover expenses for procedures, treatments or family milestones.

Large purchases

Depending on the interest rate and repayment terms, a personal loan can be a good way to pay for expensive items over time.

• Cars and boats: While secured auto loans and boat loans are available, you can also use an unsecured personal loan to purchase these big-ticket items.
• Other major purchases: You can use a personal loan to pay for electronics, high-end furniture or other one-time items.

Emergency and medical uses

Personal loans can help cover urgent or unexpected expenses:

• Medical emergencies: Procedures or hospital bills not fully covered by insurance can be paid for with personal loans.
• Urgent home repairs: Personal loans can come in handy when you need to fix broken appliances, heating systems or leaking roofs and don’t have a home warranty.
• Funeral expenses: Use the funds to help cover bereavement costs for unexpected family deaths.
• Pet emergencies: You can use a loan to pay for emergency vet bills that you can’t otherwise cover.

Travel and relocation

Traveling or relocating is expensive. If you can’t get on a payment plan, a personal loan is another good way to spread out the cost over time.

• Vacations or honeymoons: If you're planning a dream trip or a honeymoon and you don't have the cash to pay upfront, a personal loan for vacations can help you finance your trip.
• Moving costs: Moving is expensive, and you’ll have to pay these costs on top of whatever you paid to get a new apartment or home.
• Temporary relocation: Short-term housing for work or family needs may require an upfront loan.

Legal and financial obligations

Legal fees are notoriously expensive; if you don’t have enough savings to cover the costs, a personal loan can help.

• Attorney fees: Use a personal loan to cover legal representation costs.
• Court costs and settlements: Pay for divorce settlements or small claims fees.

Business-related uses

There are business-specific loans out there, but if you need extra cash, a personal loan can cover the extra costs associated with your venture.

• Starting a business: Fund registration, equipment or setup costs.
• Inventory or short-term expenses: Cover operational costs while awaiting revenue.

What a personal loan can’t (or shouldn’t) be used for

You can use a personal loan for almost anything, but there are a few specific exceptions to keep in mind.

• College tuition and fees: Personal loan companies don't want these loans used to pay for college tuition and fees, nor do they want you to use personal loan funds to pay off existing student loans. If you need funding for college, you should check out federal and private student loans instead.
• Down payments: Mortgage lenders don’t let borrowers use loan funds for the down payment on a home. Instead, they require buyers to save the amount they need in cash.
• Investing: Even if you can theoretically use personal loan funds for investment purposes, you shouldn't. There’s a risk you could lose some or all of it and still have to repay the full loan amount.

Should you use a personal loan to cover large expenses?

Whether you should use a personal loan to cover an expense is a personal choice, but financial advisors recommend exploring other financing options before choosing this route.

While it can make sense in certain situations, there are potential downsides to borrowing, warned financial advisor Robin Snell of Nested Financial & Tax Planning. This includes the burden of adding new debt and the budget strain of having a new monthly payment. You should also think about the opportunities those debts can cost you when you take out a new loan.

“Overwhelming debt hinders seizing new ventures or investments,” said Snell. “Those interest payments could enrich investments or quality of life instead of filling the pockets of big banks.”

Snell says you should ask yourself if you really need a loan right now and if you're willing to deal with the consequences of borrowing. For example, consider how the debt will impact your financial stability if unexpected life events occur, like job loss or a medical emergency.

If you decide to borrow with a personal loan, shop around and compare lenders based on their loan amounts, fees, interest rates and repayment terms. That way, you can borrow what you need without paying more interest and fees than you have to.

What to consider before taking out a personal loan

Before you take out a personal loan, consider the risks and responsibilities you're taking on. For example, personal loans don’t offer the best interest rates for bad credit, and lenders often charge origination fees, explained Howard Dvorkin, chairman of Debt.com.

“If you miss a payment, there are more fees,” he said. “If you default, your credit score plummets, and you’re left with massive debts you now have no way to pay off.” 

That said, a personal loan can still make sense in very narrow circumstances. “If you possess financial discipline and you’'re closing in on an achievable financial goal, then it makes sense,” said Dvorkin.

Factors to consider before you borrow with a personal loan include:

• Collateral requirements: Most personal loans require no collateral, however, secured personal loans also exist. If you put up collateral securing this type of loan, you can lose it if you fail to repay.
• Credit impact: Applying for a personal loan can temporarily ding your credit, and failing to make loan payments can dramatically damage your credit.
• Annual percentage rate (APR): The rates you’ll pay can vary based on your credit score, income and other factors. Fortunately, some lenders let you "check your rate" before you apply, which gives you an idea of the rates you would get approved for.
• Loan fees: Watch out for origination fees, which can be as much as 12% of the loan amount. Also, watch out for prepayment penalties and other hidden fees.
• Loan terms: Repayment terms often last for up to 84 months or even longer. Ask yourself if you can afford to and want to make the loan payment for that long.

» MORE: How to apply for a personal loan

Alternatives to personal loans

If you need to borrow money but decide a personal loan isn’t the right fit, consider these alternatives:

• 0% APR credit cards: While credit cards aren’t good options for long-term borrowing due to the high interest rates, 0% APR credit cards can work well when you need to borrow a small sum you can pay off quickly. While 0% APR offers vary widely, the longest you can get with 0% APR on purchases is 21 months.
• Personal lines of credit: A personal line of credit from a bank or credit union lets you access cash as you need it instead of getting a lump sum upfront.
• Home equity loans and HELOCs: Home equity loans and home equity lines of credit (HELOCs) let you borrow money while using your home as collateral.
• Saving for what you want: Depending on what you need funding for, you may be able to save up the cash you need over time. If you choose this option, make sure to open a high-yield savings account so you’re earning interest on your deposits.