How to Use a Personal Loan in 2025

How to Use a Personal Loan

So, you've decided to apply for a personal loan. You're in good company! Over 20 million Americans have outstanding personal loans at any given time, and those numbers keep climbing higher as interest rates drop.

Personal loans can be used for many purposes. The most common is debt consolidation. If you have high interest rate credit cards or other loans, or you just want to simplify what you owe by turning it into a single monthly payment, a personal loan can be a great way to do that! Just make sure that you actually use your loan proceeds to pay off those debts: it can be tempting to see that big deposit in your bank account and spend it on - you guessed it - more purchases! If you're not sure you have the self-control to avoid that, look into taking a personal loan from a lender that offers direct payments to creditors, keeping the money out of reach and ensuring that your strategy to reduce and consolidate debt is put into place.

One of the next most frequent uses for personal loans is home remodeling. Whether you're finally upgrading your 1970s kitchen or taking care of long-overdue repairs, a personal loan can make it happen. This is a solid option if you don't have enough equity built up to take out a home equity loan or line of credit, or if you prefer not to put your property up as collateral. Bear in mind that most personal loans are around $8000; you may or may not qualify for a loan amount that will cover the remodeling work you want to do.

Major purchases can also be a smart way to use a personal loan, to avoid paying credit card interest rates. Is it time to replace the refrigerator? Did a power surge take out all of your home electronics and your homeowner's insurance won't cover it? You can do all of that and more with your loan proceeds. You could even use a personal loan to finance an RV, boat, or that motorcycle you've always wanted.

And then we come to those once-in-a-lifetime splurges, like wedding expenses or a dream vacation. If you said yes to the dress, a personal loan can cover it all, from the engagement ring to the venue and the honeymoon too. Or, on the other end of the spectrum, maybe you're hoping to check off that bucket list destination for your 25th anniversary (or in celebration of a long-awaited divorce?! *cough cough*). Although you'll be making payments on your nuptials or bon voyage for several years, it's much wiser to do so with a personal loan than by racking up charges on your credit card.

Finally, a personal loan is often a better choice than a payday loan. There's a reason that those types of lenders are often referred to as "predatory": interest rates are sky-high (we're talking as high as 700%!) and you're expected to pay the funds back in a very short period of time. Payday loans usually target people with less-than-awesome credit scores, making them think there are no other options - but that's simply not the case. While you'll pay higher interest rates on your personal loan if you don't have a good credit history, they're not likely to be higher than 40% You can find a reputable lender that works with consumers who have bad credit, getting a personal loan that won't leave you worse off than when you started!

Now that you know how to use a personal loan, you might be wondering if there's ever a reason you shouldn't get one. The answer is yes. There are some cases where the purpose of your loan could get you funding with better terms and features: mortgages, student loans and car loans are three common examples.

You should also evaluate your monthly budget to determine if you can afford the monthly payments on a personal loan. If day-to-day cash is tight, it might be easier for you to make the minimum required payments on your credit card(s) for now, and apply for a personal loan when your income improves.