Debt consolidation
Personal loans are a popular method of debt consolidation. In fact, some lenders refer to these loans as debt consolidation loans.But you can also apply for a personal loan and use the funds to pay off outstanding loans or credit cards. That way, you can roll those multiple monthly debt payments into a single payment.
Using a personal loan for debt consolidation can make sense if the interest rate on the new loan is lower than those of your existing debts. Keep in mind that while a longer repayment term may lower your monthly payments, you may end up paying more in interest, even if the rate is lower.
Emergencies
When emergencies happen, they can mean big costs. Whether you’re dealing with unexpected car or home repairs, a personal loan can provide quick, convenient funding so you can get the services you need.
Wedding costs
A personal loan can help couples navigate the many expenses that come with weddings. It doesn’t matter if you’re using the money to pay for flowers, a gown, reserving the venue or all the above. You can even use funds to pay for the honeymoon.
Moving expenses
Personal loans can sometimes make sense for moving costs. For example, if you receive a job offer and have to relocate, you may borrow money to facilitate that move. In that case, you may use funds to cover freight shipping, movers, truck rental or supplies. A personal loan can allow you to borrow what you need for this one-time cost and pay it back over time.
Home improvements
You can use a personal loan for home upgrades and improvements, such as a bathroom remodel or fixing a leaky roof. A personal loan may make sense if you need funds sooner for an emergency repair or if you don’t want to tap into your home’s equity with a home equity loan.
There are pros and cons to both home equity loans and personal loans for home improvements, and the right loan will depend on your circumstances. If you’re deciding between these options, it’s important to figure out which is most appropriate for the situation.
Other big expenses
Personal loans can make the most sense for large, one-time expenses — things that come up once and require immediate financing that you’ll be able to repay over time. For instance, you might use a personal loan for a big, unanticipated tax bill or to replace a boiler.
What can’t you use a personal loan for?
While you can use a personal loan for almost anything, lenders can limit what you can use funds for. You generally can’t use a personal loan for:
- Higher education costs: This can include both paying for tuition or fees as well as paying off student loans
- Business expenses: You typically can’t use personal loans for business-related costs
- House down payments: Most mortgage lenders prohibit using personal loans as a source of down payments
Reasons to consider personal loan alternatives
Personal loans can be great tools in many circumstances, but they’re not right for every situation.
For example:
- If you have ongoing expenses, like a long-term project with unpredictable costs, a personal loan may not make sense because it would only provide a single lump sum. You may need something like a personal line of credit, which can give you access to revolving credit.
- If you have smaller expenses that you can pay back within the month, a personal loan may not make sense. In that case, you may want to consider using a credit card instead.
- If you have a longer timeframe to obtain funding for larger expenses, you might instead consider a home equity loan. Home equity loans may offer higher loan amounts and lower interest rates than you might find with a personal loan, but you’ll generally need to use your home as collateral. If you default on the loan, the lender may foreclose on the property.
If you’re interested in a personal loan, you may use pre-qualification to help you understand your options, including potential loan terms. For example, you can see if you pre-qualify for a flexible, fee-free Citi® Personal Loan in just a few clicks without harming your credit.
Personal loans can be powerful tools, helping you to navigate emergencies and get out of debt. Just be sure that you weigh the pros and cons before applying.
This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
