What Can You Use a Personal Loan For?
Bills Bottom Line
Personal loans are flexible—most lenders let you use the money for almost any personal expense, from debt consolidation to home repairs to medical bills. A handful of uses are typically off-limits. The right use is one where the cost of borrowing is less than the cost of the alternative.
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Maybe you’ve got a bill that needs paying, a project that can’t wait, or a debt you want off the table. Before you apply for a loan, you want to know: Can I use a personal loan for that?
Personal loans are flexible, and most of the time, the answer is yes. Common uses include making a large purchase, covering unexpected expenses, and consolidating existing debt.
While flexible, there are some places personal loan lenders draw the line. Learn what’s allowed, what most lenders typically restrict, and whether a personal loan is the right tool for your situation.
Most common uses for personal loans
A personal loan gives you a lump sum upfront, which you repay in fixed monthly installments over a set term. Most personal loans are unsecured with fixed rates, which can make them ideal for a variety of uses.
Debt consolidation
Debt consolidation is one of the most common reasons people take out a personal loan. You use the loan to pay off multiple existing debts—credit cards, medical bills, other loans—and combine everything into one monthly payment at a fixed rate.
A personal loan could help simplify repayment. Better, it could reduce interest costs if the loan’s APR is lower than the rates on your existing debts. That’s the key comparison to make before you apply.
Home improvements
Unsecured personal loans are commonly used for home improvement, including large renovation projects or repairs. An unsecured personal loan skips the collateral requirements that exist with some options. That could make it faster to access and simpler to apply for financing, especially for smaller projects where you don’t want to tap home equity or put your home on the line.
Medical, dental, and veterinary expenses
Out-of-pocket costs for procedures not covered by insurance can arrive with little warning and no time to save. A personal loan gives you a defined repayment schedule and helps you avoid carrying a high-rate balance on a credit card or negotiating an open-ended payment arrangement with a provider. Knowing exactly what you owe each month could make it easier to plan.
Major life events
Funerals, adoption costs, IVF treatments, and moving expenses all fall into this category. These costs are often significant, and don’t always align with when cash is available. A personal loan lets you cover the expense now and repay it over time on a predictable schedule. One fixed payment each month, for a set number of months, at a rate locked in when you borrow.
Emergency and unexpected expenses
Car repairs, urgent travel, or a sudden home repair that can’t wait are common reasons people get personal loans. If the alternative is a high-rate credit card or a delay that turns a small problem into a bigger one, a personal loan may cost less over time. The fixed rate and payment also make it easier to budget for than an open revolving balance.
Large purchases
Appliances, furniture, and other big-ticket items fit here. Personal loan terms typically run two to seven years, though some lenders offer shorter or longer terms. That fixed timeline makes repayment more predictable than revolving credit and gives you a clear end date.
What personal loans generally can't be used for
Prohibited-use lists vary by lender. Most lenders restrict the following categories:
- College tuition and student loan refinancing. Many lenders prohibit using a personal loan to pay for college or to refinance existing student loans. The interest rates and lack of borrower protections make this a bad idea anyway.
- Home down payment. Conventional and FHA mortgage lenders typically prohibit using personal loan funds as a down payment.
- Business or commercial expenses. Most personal loan agreements restrict use to personal, non-business expenses. Business loan products exist specifically for commercial purposes and often come with different underwriting criteria and tax treatment.
- Investments, cryptocurrency, and gambling. Nearly all lenders prohibit these uses. Plus, the high-risk nature of these activities make it an unwise use of debt.
- Illegal activities. Covered in every lender agreement. This could also include things that may be legal in your state but are not legal federally.
If you use funds for a prohibited purpose, that's a breach of contract. The lender could require full repayment immediately. Specific policies vary, so check the lender’s restrictions in the loan agreement before you sign.
Is a personal loan the right tool for what you have in mind?
A personal loan can do a lot. Whether it’s the right tool depends on what you’re paying for, what alternatives are available, and the total cost of borrowing.
| A personal loan could make sense if… | Consider an alternative when… |
|---|---|
| You have a one-time expense with a defined cost. | Your expense is ongoing or the total is uncertain—a line of credit may fit better. |
| You prefer a fixed monthly payment and a set payoff date. | You can pay the balance within a 0% intro APR window (typically 12–21 months). |
| You don’t have collateral to offer, or don’t want to put it at risk. | You own a home and the purpose is improvement. |
| You need to consolidate multiple high-rate debts into one payment. | Your purpose is education. |
| You need funds faster than a secured product would allow. | The personal loan APR is higher than your alternative. |
The key question
Before borrowing, ask: Is the cost of this loan—interest plus all fees—less than what you’d pay with the alternative?
If yes, a personal loan is worth considering. If not, explore other options first.
The best choice depends on your goals, budget, and situation.
Alternatives to personal loans
Sometimes, the alternatives fit your circumstances better than a personal loan. Consider these if a personal loan isn't the right option.
Home equity loan or HELOC
If your purpose is a home improvement, a home equity loan or HELOC may be worth considering. Rates are generally lower than personal loans (though personal loan rates vary widely, so don’t assume a home equity product will always cost less).
Home equity loans and HELOCs may also have tax benefits if the funds are used to repair or substantially improve your home. Consult a tax specialist if you're considering this route.
The big difference is risk: A HELOC puts your home on the line. If you can’t pay, your home could be foreclosed. A personal loan doesn’t carry that risk.
0% intro APR credit card
Some credit cards come with introductory deals that give you 0% interest on purchases for a set time, usually 12 to 21 months. If your expense is manageable in size and you’re confident you can pay it off within the promotional window, a 0% intro APR card may cost you nothing in interest.
The trick is to pay off the purchase in full before the offer ends. If you carry a balance after the promotional period ends, the rate typically climbs sharply. This option works best when you have a realistic payoff plan before you charge anything.
Federal student loans
If your purpose is education, federal loans offer a variety of benefits that personal loans simply don't:
- Income-driven repayment
- Deferment
- Forgiveness programs
Check all your federal student aid options before considering a personal loan for education costs. Filling out the FAFSA form is free.
Does the lender track how you spend personal loan funds?
Once your loan funds are deposited into your bank account, the lender generally does not directly monitor how you spend them. The money is yours to use, but only within the terms of the loan agreement.
Remember that the loan agreement is a binding document. If a misuse of funds comes to light for any reason, the lender could require full repayment immediately.
It comes down to two practical steps: Read the prohibited-use list before you apply, and don’t self-report a prohibited purpose on the application. Read your loan agreement, and know exactly what’s in it.
Bills Action Plan
- Check your lender’s prohibited-use list before applying.
- Compare the personal loan’s overall fees and interest costs to what you’d pay on a credit card or alternative financing. If the personal loan cost is higher, explore other options first.
- Look for pre-qualification that uses a soft credit inquiry to check rates without hurting your credit score.
Key Terms
APR (annual percentage rate): The total yearly cost of borrowing, including the interest rate plus most lender fees. APR is the standard for comparing loan costs.
Debt consolidation: Using a new loan to pay off multiple existing debts, combining them into one monthly payment. Ideally, you consolidate to a lower interest rate than you're currently paying.
Origination fee: A fee some lenders charge to process a loan, usually deducted from the loan amount before you receive it. Personal loan origination fees typically range from 0% to 12% of the loan amount.
Unsecured loan: A loan that doesn’t require collateral or something of value to back it up. Most personal loans are unsecured, but secured options exist. For general information only. Bills.com is not a lender and does not make credit decisions. Loan availability, rates, and terms vary by lender and are subject to credit approval.
Can I use a personal loan to pay off credit card debt?
Yes. Debt consolidation is one of the most common uses for a personal loan. You use the loan funds to pay off your credit card balances and carry one fixed monthly payment going forward. Before applying, confirm the personal loan’s APR is lower than the rate on your credit cards. Otherwise, you may not reduce your interest costs.
Can I use a personal loan to buy a car?
Yes. Most lenders allow personal loans for vehicle purchases. A dedicated auto loan typically offers a lower rate because the vehicle serves as collateral. A personal loan avoids putting the car on the line, but may cost more in interest. Compare APRs from both options before deciding.
What happens if I use the loan for something prohibited?
If you use funds for a purpose your lender prohibits, the lender may require you to repay the full balance immediately. Check the loan agreement before applying. The prohibited-use list is there for a reason.