What Can a Personal Loan Be Used For?

A personal loan serves as a versatile financial tool, providing individuals with a lump sum of money that can be used for various purposes. Unlike secured loans, which require collateral such as a home or car, most personal loans are unsecured, meaning they are issued based on a borrower’s creditworthiness and financial history. This type of loan typically comes with a fixed interest rate and a set repayment period, allowing for predictable monthly payments. The flexibility of personal loans makes them suitable for a wide array of needs, from managing existing debts to funding significant life expenses.

Debt Consolidation

One common application for a personal loan is debt consolidation, which involves combining multiple existing debts into a single, new loan. This strategy is often used to manage high-interest obligations, such as credit card balances. The average annual percentage rate (APR) for credit cards can be quite high, with some general-purpose cards averaging around 21.95% as of February 2025, and private label credit cards reaching an average of 27.7% in 2022. In contrast, personal loan APRs typically range from 6% to 36%, with an average of approximately 12.64% for borrowers with good credit as of August 2025.

By consolidating, borrowers aim to secure a lower interest rate, which can significantly reduce the total cost of their debt and simplify their monthly payments. Personal loan repayment terms typically range from two to seven years, though some lenders may offer terms as short as one year or as long as 10 to 12 years for larger loan amounts. This fixed payment schedule helps borrowers gain a clearer path to becoming debt-free, making financial planning more straightforward. While some personal loans may include an origination fee, typically ranging from 1% to 8% of the loan amount, the potential savings from a lower interest rate often outweigh this upfront cost.

Home Improvements and Repairs

Personal loans also offer a funding solution for various home improvement projects and necessary repairs. Homeowners can use these funds for renovations like kitchen or bathroom remodels, or essential repairs such as roof replacements or upgrades to heating, ventilation, and air conditioning (HVAC) systems. Home renovation costs vary significantly, often reaching tens of thousands of dollars.

Utilizing a personal loan for home projects allows property owners to enhance their living space without needing to tap into their home equity through a home equity loan or line of credit. This approach avoids placing a lien on the home, which is a consideration for some borrowers. Personal loans can be a preferable alternative to high-interest credit cards for funding these substantial expenses, providing a structured repayment plan that aligns with the project’s budget.

Major Life Events and Significant Purchases

Significant life events and large, one-time purchases often require a substantial amount of capital, and personal loans can provide the necessary funds. For instance, financing a wedding is a common use, with the average American wedding costing around $33,000 in 2024. These loans can also help cover adoption costs, which can vary widely, often reaching tens of thousands of dollars.

Beyond celebratory or family-building expenses, personal loans can facilitate the purchase of large items such as major appliances or substantial furniture. They can also fund significant travel experiences, like honeymoons. The lump sum provided by a personal loan allows individuals to address these often non-recurring, considerable expenses without depleting savings or relying on credit options that may have less favorable terms.

Unexpected Expenses and Emergencies

Life can present unforeseen financial challenges, and personal loans can serve as a resource for addressing these unexpected expenses and emergencies. Such situations might include urgent medical bills, where out-of-pocket costs can quickly accumulate, often reaching thousands of dollars. For example, a single hospital stay can cost thousands. Another common emergency is car repairs, which can range from hundreds to thousands of dollars, especially for complex issues.

When an emergency fund is insufficient or nonexistent, a personal loan can provide quick access to needed funds. Lenders often process personal loan applications swiftly, sometimes providing approval and disbursement within a few business days. This rapid access to capital can be crucial in managing financial setbacks that require immediate attention, helping individuals avoid further financial strain or disruptions to their daily lives.

Educational Pursuits

Personal loans can also be applied to various educational pursuits, extending beyond the scope of traditional student loans. These loans can cover tuition for vocational training programs, which can cost thousands of dollars. They can also fund certification programs that enhance professional skills or provide entry into new careers. Furthermore, continuing education courses or specialized professional development programs, not typically covered by federal student aid, can be financed using a personal loan.

The flexibility of personal loans makes them suitable for individuals seeking to invest in their human capital without the specific limitations sometimes associated with dedicated educational financing. This includes costs such as books, supplies, or living expenses while attending a program. By offering a straightforward way to borrow, personal loans support a wide range of learning opportunities for career advancement or skill acquisition.