With a personal loan, you can use the funds for almost anything, from paying off high-interest debt to funding a large purchase. But your loan agreement may prohibit you from using the money for certain expenses, like college tuition or gambling.
You may also face restrictions from lenders if you try to use personal loan funds as a down payment on a mortgage. There are alternative financing options for these restricted purposes, however.
College tuition
Most personal loan lenders restrict borrowers from using personal loan funds for post-secondary education expenses. Lenders that allow loan funds for college expenses are typically required to comply with the requirements of the 2008 Higher Education Opportunity Act, which many lenders view as burdensome.
For example, private education lenders must provide certain disclosures, allow a rumination period, and give borrowers the right to cancel their loan agreement within three days of fund distribution. Most lenders prefer to avoid the regulations, so they won’t issue loans to borrowers who intend to use the funds to pay for post-secondary education.
Alternative option: The good news is, grants, scholarships, and work study arrangements can be used to fund college expenses without borrowing. And if you still need a loan, both federal student loans and private student loans come with lower average interest rates than personal loans. Parent PLUS loans are another option for some families.
Business expenses
Some lenders allow you to use a personal loan to start or grow your business, while others explicitly prohibit using personal loans for business expenses. However, even if you can qualify for a personal loan at a low rate and the lender allows you to use the loan, there are risks to going this route. If your business idea fails and you can’t afford repayment, you’ll damage your personal credit score.
Alternative option: Consider looking into whether you qualify for a Small Business Administration loan instead. You’ll enjoy lower rates and higher borrowing amounts, and you can deduct the interest you pay on your tax return. But if your business is new or you can’t qualify for a business loan for other reasons, consider lenders that offer personal loans for business use.
You may also apply for a business credit card with a 0% introductory APR offer to cover minor expenses.
Making a down payment on a home
Most conventional and government-backed mortgage lenders don’t allow you to use personal loan funds as a down payment on a mortgage, even if it’s allowed in the terms of your personal loan agreement.
While it’s possible to find a mortgage lender willing to issue a home loan with a borrowed down payment, the outstanding personal loan will increase your debt-to-income ratio. It will also potentially lower your credit score, at least initially. That could mean you’ll pay a higher mortgage rate.
Alternative option: Saving enough for a down payment can seem overwhelming, but it’s possible to get a first-time conventional mortgage with as little as 3% down. And if you deposit your savings into a high-yield savings account, you’ll grow your money faster and be ready for homeownership sooner than if you used a traditional bank account.
Learn More: Can You Use a Personal Loan for a Down Payment?
Gambling or illegal purchases
Most personal loan lenders restrict you from using the money to gamble or engage in illegal activity, like buying narcotics. And you’ll need to be honest on your application about how you plan to use the money.
Lying on a loan application violates the law and could be considered bank fraud which is punishable by a prison sentence up to 30 years and/or a maximum fine of $1,000,000. If you use the money to commit illegal acts, you’ll also be subject to the criminal repercussions for those crimes.
What you can use a personal loan for
Personal loans can be used for virtually any other purpose not mentioned above. Some common ways to use personal loan funds include:
- Consolidating high-interest debt
- Paying for medical or veterinary expenses
- Covering an auto or home repair
- Making a large and necessary purchase
- Paying for moving expenses
- Planning a wedding or vacation
Though personal loans can be used for almost anything, you should only borrow what you need and what you can afford to repay over time. For example, it’s not a good idea to take out a personal loan to shop a big sale at your favorite department store. In most cases, budgeting and saving for what you need is a better option than borrowing.
Credible rating
Fixed (APR)
6.99% - 25.49%
Loan Amounts
$5000 to $100000
Min. Credit Score
700
Credible rating
Fixed (APR)
7.80% - 35.99%
Loan Amounts
$1000 to $50000
Min. Credit Score
620
Credible rating
Fixed (APR)
-
Loan Amounts
$2500 to $40000
Min. Credit Score
660
Credible rating
Fixed (APR)
8.49% - 17.99%
Loan Amounts
$600 to $50000
Min. Credit Score
760
Credible rating
Fixed (APR)
8.49% - 35.99%
Loan Amounts
$1000 to $50000
Min. Credit Score
600
Credible rating
Fixed (APR)
8.98% - 35.99%
Loan Amounts
$1000 to $40000
Min. Credit Score
660
Credible rating
Fixed (APR)
8.99% - 29.99%
Loan Amounts
$5000 to $100000
Min. Credit Score
Does not disclose
Credible rating
Fixed (APR)
8.99% - 35.99%
Loan Amounts
$2000 to $50000
Min. Credit Score
600
Credible rating
Fixed (APR)
9.95% - 35.99%
Loan Amounts
$2000 to $35000
Min. Credit Score
550
Credible rating
Fixed (APR)
-
Loan Amounts
$5000 to $35000
Min. Credit Score
700
Credible rating
Fixed (APR)
11.69% - 35.99%
Loan Amounts
$1000 to $50000
Min. Credit Score
560
Credible rating
Fixed (APR)
11.72% - 17.99%
Loan Amounts
$3000 to $40000
Min. Credit Score
640
Credible rating
Fixed (APR)
-
Loan Amounts
$20000 to $200000
Min. Credit Score
660
Credible rating
Fixed (APR)
14.30% - 35.99%
Loan Amounts
$3500 to $40000
Min. Credit Score
640
Credible rating
Fixed (APR)
18.00% - 35.99%
Loan Amounts
$1500 to $20000
Min. Credit Score
540
All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | SoFi Disclosures | Read more about Rates and Terms
Personal loan use FAQ
How to apply for a personal loan
Start by researching eligibility requirements, lender reputation, permitted use cases, and loan features to narrow down your options. Then, prequalify with a few lenders so you can compare rates and terms. Once you’ve chosen a loan offer, submit any additional information, review and sign your loan documents, and wait for the funds.
What are the consequences of misusing a personal loan?
If your loan agreement contains loan restrictions and a penalty clause, and you violate the terms of the agreement, you could incur a penalty from the lender. But more importantly, you could be found guilty of bank fraud, which carries a maximum fine $1,000,000 and a maximum 30-year prison sentence.
Where can I get a personal loan?
Personal loans are available from banks, credit unions, and online lenders. If you need help comparing your personal loan options, you can also use a loan aggregator site to get personalized rate estimates from a variety of lenders in one place.