Does Your Loan Purpose Matter? Bankrate Caret RightMain Menu Mortgage Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Bank Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Credit Card Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Caret RightMain Menu Loan Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Invest Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Home Equity Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Loan Home Improvement Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Insurance Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Retirement Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Advertiser Disclosure
Advertiser Disclosure
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: s_oleg/Shutterstock August 24, 2022 Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy. Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Editorial Independence
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Taking out a is exactly that — personal. But does your lender need to know how you plan to use funds? In short, yes. While most reasons won’t stop you from obtaining a personal loan, you’ll need to explain why you need the money you’re borrowing. You can generally use the loan proceeds however you see fit, but some lenders have restrictions. Plus, the loan purpose could impact the loan terms you receive. Common reasons for taking out a personal loan
Child-related costs: If you want to expand your family, a personal loan can cover the costs of fertility treatments, adoption expenses or hospital bills from labor and delivery. While it can also help cover needs after your child comes home, a personal loan is usually best for fixed costs. College expenses: If you or your child are enrolled in college and have outstanding tuition or other related expenses, a personal loan may help fill the void. Sometimes, the interest rates on personal loans are lower than what you’ll find with student loans. Debt consolidation: You can save money on interest payments by consolidating with a personal loan with lower interest rates. The average right now is around 17 percent — versus , which average a little over 10 percent. If you have stellar credit, you could secure the lowest interest rate available, which is often much less than a credit card. Delinquent debt: Whether you owe a debt collector or the IRS, you can use a personal loan to pay off the outstanding balance and eliminate the added stress. Emergencies: If you need to pay bills right now and don’t want to be late, you can take out an to cover those costs. If you lose your job, get your work hours reduced or have an emergency medical bill, a personal loan can meet your needs in the short term. Funeral and end-of-life needs: A personal loan can pay for the funeral, burial and related end-of-life costs when a loved one dies. Home improvements or repairs: If a water pipe bursts or your air conditioning goes out, a can pay for repairs if you don’t have the cash and don’t want to use your credit card. Large purchases: You can use a personal loan to buy a recreational vehicle such as a boat, or a — or to improve . You can also use a personal loan to spread out the costs of purchases that would take a significant chunk out of your budget, such as dental bills, and veterinary expenses. Major life milestones: If you’re planning a big move for a new job or helping a grown child , you may need extra cash. Vehicle financing: Personal loans can also be used instead of an auto loan to purchase a new or used car, truck or van if you’d prefer not to use the vehicle as collateral. Vacation expenses: A regular vacation probably doesn’t warrant using a personal loan to cover the costs. But a personal loan could be worthwhile if you’re looking to cover costs for a vacation celebrating a major milestone, including a honeymoon or anniversary. Does the reason for taking out a personal loan matter
Your reason for getting a personal loan can impact the type of loan you take out, as well as the loan amount and interest rate you get. Some lenders have a specific type of borrower they will lend to. For instance, is a lender that serves only borrowers with credit card debt. If you’re looking for a debt consolidation personal loan, that might be a lender to consider. But if you’re looking for a home improvement loan, you’ll need to look elsewhere. Furthermore, some lenders offer different terms for certain purposes. is an example of a lender that sets interest rates based on your loan purpose. For instance, as of October 2022, a new auto loan purchase has rates as low as 5.99 percent APR, but personal loans for a kitchen remodel start at 6.24 percent APR and wedding loans APRs start at 6.99 percent. To make sure you’re getting the best deal, compare interest rates, terms and fees from lenders that are offering personal loans that match your needs. Review credit requirements, such as your , history and income qualifications. Restricted personal loan uses
Most lenders allow you to use the loan proceeds however you see fit. But if the lender does impose usage restrictions, they likely fall into one of these categories: Down payment on a home purchased with an FHA or conventional mortgage: Lenders view this practice as risky as the likelihood of falling behind on loan payments is higher with two loan payments to manage. Although it could take some time, saving up over time in a high-yield savings account is a better alternative to come up with a down payment for a new home. Educational purposes, including college tuition and fees: This results from the 2008 Higher Education Opportunity Act, which provides a series of requirements that lenders offering education loans must abide by. Many lenders fail to meet these mandates, so personal loans are often disallowed for higher education expenses. However, federal student loans could be a viable option as they come with low interest rates, and generous loan terms and are available to most students regardless of credit history. Business-related expenses and gambling activities: Not all lenders restrict using loan proceeds for these purposes. Still, it’s worth asking as it’s not uncommon to find that business expenses or expenses incurred as a result of gambling activities are prohibited. What not to use personal loans for
Personal loans can be a fast, convenient way to get needed cash. However, there are instances where they aren’t the best choice. For example, you could get a far lower interest rate and better loan terms if you need funding for a car or higher education and you take out an auto loan or student loan instead. This is also the case for home purchases — a mortgage will get you an extended loan term and competitive interest rate to make your monthly payments more affordable. Furthermore, you have to evaluate if you need the funds. If you’re looking to cover the cost of something you want versus an actual need, you may be better off saving up over time to make the purchase. Plus, you’ll keep more of your hard-earned money in your pocket by not having to pay interest. You should also avoid personal loans if you have less than perfect credit. The most competitive loan terms are generally reserved for borrowers with good or excellent credit. A lower credit score doesn’t mean you’ll be denied a loan, but your borrowing costs will likely be higher. Most importantly, run the numbers to make sure a personal loan makes sense. If the monthly payment stretches your budget too thin, it’s not worth the headache, regardless of how you intend to use the funds. The bottom line
Frequently asked questions
What s the best reason to give for a loan
Can I use my loan for anything
What happens if I use my loan for a different purpose
Learn more
SHARE: Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy. Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Related Articles