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7 Times Taking Out a Personal Loan Is Totally Justifiable

A personal loan can be a better option than credit cards or other loan types.

By Holly Humbert

Edited by Lauren Wellbank

Updated Nov. 5, 2025

A personal loan can be used for just about anything. In 2024, the majority of people taking out personal loans are using them to get out of debt.

Unlike specialized loans, like a mortgage or auto loan, personal loans are unsecured and are not tied to any collateral. You can apply for these types of loans through banks, credit unions, and even online lenders.

Personal loans can be handy in all types of circumstances. Let's examine when taking out a personal loan could be the smartest thing to do in specific financial situations.

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If you want to consolidate high-interest debt

Personal loans often come with more favorable interest rates than credit cards, which may help you lower your monthly payments or even accelerate your best payoff.

In 2024, the average personal loan interest rates are around 12.5% vs. average credit card interest rates of almost 21%.

If you're using personal loans to pay down credit card debt, be careful not to run your credit cards up again, after you use the loan to pay them off. This may put you in a difficult financial position where your monthly payments could become higher than before.

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For those who want to boost their FICO

Personal loans are factored into the equation used to determine a person's creditworthiness. If you're trying to improve your credit, taking out a personal loan and paying it on time every month may help boost your credit score.

Payment history accounts for 35% of your credit score. Having a long history of on-time payments can help give your score a boost.

However, if you are late making payments or miss a payment — that will have the opposite effect and can drop your credit score.

When you can get better financing

If you're looking to make a big purchase using credit, you may want to shop around for rates before signing on any dotted lines. You may be surprised to find out that a personal loan offers more favorable financing than in-house credit offerings.

For example, if you're looking to buy a new refrigerator, the retailer may offer in-store financing or credit card options that seem appealing and reasonable, like low monthly payments or 0% APR for a few months.

However, when you examine the fine print, there are potential annual fees and additional interest charges that may mean you end up spending more.

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National Debt Relief could help you resolve your credit card debt with an affordable plan that works for you. Just tell them your situation, then find out your debt relief options.¹ <p>Clients who complete the program and settle all debts typically save around 45% before fees or 20% including fees over 24–48 months, based on enrolled debts. “Debt-free” applies only to enrolled credit cards, personal loans, and medical bills. Not mortgages, car loans, or other debts. Average program completion time is 24–48 months; not all debts are eligible, and results vary as not all clients complete the program due to factors like insufficient savings. We do not guarantee specific debt reductions or timelines, nor do we assume debt, make payments to creditors, or offer legal, tax, bankruptcy, or credit repair services. Consult a tax professional or attorney as needed. Services are not available in all states. Participation may adversely affect your credit rating or score. Nonpayment of debt may result in increased finance and other charges, collection efforts, or litigation. Read all program materials before enrolling. National Debt Relief’s fees are based on a percentage of enrolled debt. All communications may be recorded or monitored for quality assurance. In certain states, additional disclosures and licensing apply. ©️ 2009–2025 National Debt Relief LLC. National Debt Relief (NMLS #1250950, CA CFL Lic. No. 60DBO-70443) is located at 180 Maiden Lane, 28th Floor, New York, NY 10038. All rights reserved. <b><a href="https://www.nationaldebtrelief.com/licenses/">Click here</a></b> for additional state-specific disclosures and licensing information.</p>

Paying for a home improvements

Personal loans may be a better choice than refinancing or using a home equity line of credit (HELOC) when paying for big home projects.

Some lenders require minimum withdrawals from HELOCs or cash-out refinances, forcing you to take out more money than you need.

Because personal loans can be tailored to the cost of the project, you can pay the loan off quicker and end up paying less interest in the long run.

These types of loans are also unsecured unlike a HELOC, which uses your home as collateral. This means if you default on your personal for any reason, you won't be at risk of losing your home.

Funding big life events

Big life events like weddings, adoptions, etc., can be expensive and hard to save up for. A personal loan offers a way for you to experience these once-in-a-lifetime events without requiring you to wait until you have enough money to cover it.

Looking to borrow a smaller amount

Personal loans can be as small as $1,000. Other types of loans may have bigger minimums. If you only need $2,000 to remodel your bathroom, it doesn't make sense to get a HELOC or cash-out refinance.

Credit cards may offer a higher line of credit tempting you to get into more debt than you need.

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If you're planning a move

Moving costs add up quickly—even moving locally can cost thousands of dollars, while cross-country moves can run into five figures.

A personal loan can give you peace of mind if you're planning a move. You'll be able to adequately pack, move your stuff, and settle into your new place without worrying about having the funds to cover everything.

Bottom line

Borrowers generally need to have a minimum credit score of 580 to qualify for a personal loan. However, the better your credit score is, the more favorable loan terms and interest rates you'll qualify for.

Keeping tabs on your credit history and debt amounts can lower your financial stress, especially if you're planning on borrowing money in the near future.

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