Can I use a personal loan for anything? 6 expenses that are restricted.

Yahoo

7 days ago

Whether you want to consolidate debt, pay for expensive medical bills, or cover an unexpected home repair, a personal loan could fit the bill. These loans offer relatively low interest rates compared to credit cards, repayment terms as long as five or seven years, and flexible loan amounts.
While personal loans are a versatile form of financing, lenders typically have restrictions on how borrowers can use the money. Here's what to know about potential restrictions before you apply.
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Every lender has different terms and conditions for their loans, so be sure to read the fine print if you're not sure what's allowed. However, these activities are commonly excluded in the terms of a personal loan.
Many lenders prohibit investing your personal loan funds. While it can be tempting to do so if you're hoping the market will work in your favor, there's an inherent risk with investing. If the market underperforms, you could lose your investment entirely. Even if your investment pays off, the interest fees on the personal loan will eat into your potential gains.
And if your financial situation changes due to job loss or another reason, it could make it difficult to afford your loan payments.
Though not all lenders expressly prohibit it, using a personal loan for business expenses generally isn't advisable.
Taking out a personal loan for business purposes blurs the line between your personal and business finances, which may complicate things like filing tax returns and keeping accurate records. Further, personal loans also appear on your personal credit reports and affect your personal credit, not your business credit. If you want to build business credit, a small business loan is likely a better choice.
Read more: Is it a good idea to use a personal loan for business purposes?
You can't use a personal loan for a home down payment either. Not only do most lenders prohibit this, but taking out a personal loan during your house hunt could hurt your ability to get a mortgage. The additional monthly payment will impact your debt-to-income (DTI) ratio, a key metric lenders evaluate when you apply for a home loan. Many mortgage lenders prefer a DTI below 36%. If a new personal loan pushes your DTI over 36%, you're unlikely to qualify for a mortgage.
Most lenders also won't let you use a personal loan to cover college tuition or student loan repayment. In the rare case that they will, it's generally unwise to take out a personal loan for this purpose.
That's because federal and private student loans typically have lower interest rates, making them a better borrowing option if you need to pay for higher education. Student loans also typically come with more protections and benefits than personal loans, such as a tax deduction for student loan interest.
Read more: Can I pay off my student loans with a personal loan?
Lenders typically don't allow you to use a personal loan for gambling or betting, which makes sense. Many forms of gambling are illegal in certain states, and lenders prohibit using personal loan funds for illegal purposes.
Not to mention, you could have difficulty repaying your loan if you're struggling with a gambling issue, which presents a risk to the lender. Your likelihood of a default may be higher if that's the case.
Related: Can you buy lottery tickets with a credit card?
Lenders generally allow you to use a personal loan for non-essentials, but that doesn't mean it's a good idea. Taking on debt to pay for "wants" like a vacation or pricey concert tickets isn't advisable, as it could stretch your monthly budget and damage your credit if you can't afford your payments. Plus, the added interest costs will make the item even more expensive in the long term.
Generally, it's better to set aside small amounts of money into a separate savings account to cover larger discretionary expenses.
Read more:Should I use a personal loan to go on vacation?Vacation savings accounts: Are they worth it for families?
If you're caught lying about a personal loan's purpose — or anything else on the loan application — you could face severe consequences. Doing so is illegal and likely to be considered fraud.
If you've already received the funds, the lender could demand immediate repayment in full. That could be a big problem if you've already spent the money. You could also be sued by the lender, resulting in added fines and legal fees. In rare cases, you might even face jail time.
Using a personal loan for the expenses above isn't advised, but they're a great option for covering other costs. Here are some popular uses for personal loans:
Debt consolidation: Many people turn to personal loans to consolidate high-interest debt. They typically have lower rates than credit cards, meaning you could save money on interest when you consolidate.
Medical bills: Medical bills are often unexpected and expensive. If you need to cover a trip to the ER or necessary dental work, a personal loan could be a good choice.
Veterinary fees: If your pet needs emergency care, vet bills could set you back thousands of dollars. A personal loan could make this cost easier to bear.
Home repairs: Planned and unplanned home repairs have one thing in common: They're often more than the average person has in their emergency fund. Covering a cost like this is a good use for a personal loan, especially if it will add value to your home.
Car repairs: A personal loan could also help you pay for expensive car repairs, spreading the cost over several months instead of requiring you to pay a large sum up-front.
Moving costs: Relocating can cost thousands of dollars, and that cost increases the further you move. Paying for a move can be a good use of a personal loan.
Wedding costs: According to bridal website The Knot, weddings cost an average of $33,000 in 2024. While it's a good idea to turn to your savings first to pay for a wedding, a personal loan could help you cover any gaps.
This article was edited by Alicia Hahn.