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Can You Use a Personal Loan to Pay Rent?

Can You Use a Personal Loan to Pay Rent?
Jason Steele
Jason SteeleUpdated December 14, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
You can use a personal loan to pay rent, but that doesn’t necessarily mean you should. Taking out a personal loan for rent should really be a last resort, since the average personal loan interest rate is relatively high. However, using a personal loan to pay rent could make sense in certain circumstances as long as you have a plan to pay off the loan promptly.Here's what you need to know about using a personal loan for rent payment.

What Is a Personal Loan?

A personal loan is a type of loan from a bank, credit union, or online lender that can be used for a variety of purposes. Personal loans give you a lump sum that you repay in regular monthly payments with interest over time. Once you’re approved for a personal loan, you may expect to receive funds quickly, typically within one to five days. Personal loans can be secured or unsecured. Many personal loans are unsecured. Unsecured loans don’t need collateral. Because there is no collateral to back the loan, lenders typically look at your credit to determine whether to approve you for a loan as well as the amount of money you may borrow and the interest rate you might get. Secured loans require collateral but are usually easier to qualify for. However, if you default on a secured loan you could lose your collateral.Personal loans are different from other loans such as a mortgage. When comparing personal loan vs mortgage, most personal loans are not secured by collateral, and with a mortgage, your house is the collateral. Recommended: How Personal Loans Can Affect Mortgages

Personal Loan Uses

Personal loans are flexible and can be used for many purposes. Some common personal loan uses include paying off medical bills, making a large purchase, or debt consolidation. You could also use a personal loan for home improvement. However, you shouldn’t use personal loans for a down payment on a house, higher education costs, business expenses, or investments. Most lenders prohibit you from using personal loans for these purposes. If you are looking for a small business loan or a student loan, you can find specific loans for these purposes.  

Using a Personal Loan for a Rent Payment

If you want to use a personal loan for a rent payment, the first thing to do is decide on a lender. You can apply for a personal loan online or in-person. An online personal loan is also sometimes referred to as a paperless loan because you can apply and receive a loan without submitting or signing any paper documents. Some online lenders let you pre-qualify to check if you would potentially be approved for an online personal loan, and what your interest rate might be. You can apply for a loan in person at a bank or credit union. To find the best in-person loan option, you should evaluate multiple offers from different lenders. You can compare the costs, terms, interest rates, and features to find the one that best matches your needs. You will also need to decide what type of personal loan to apply for. If you are using a personal loan to pay for rent, you probably don’t have a lot of collateral to offer, so you will likely want to go with an unsecured personal loan. After filling out your application, the lender will run a credit check and will verify your employment and income to help decide whether to approve you for a personal loan. 

Advantages of Using a Personal Loan to Pay Rent

There are some advantages of using a personal loan to pay rent. One benefit is that the loan may provide you with extra time to pay your rent. For instance, say you just got a new job and you’re waiting to be paid. Or maybe you’re moving into a new apartment and need to put down money for a security deposit plus rent. A personal loan could provide a temporary solution if you know you will have the money to pay off the loan soon. Another advantage is that a personal loan may help your credit as long as you make your loan payments on time. Personal loans also typically have wide borrowing ranges, from less than $1,000 to more than $50,000. The amount you will be approved for is typically based on factors like your credit score and income.Recommended: Using a Personal Loan for Tiny Home Financing

Disadvantages of Using a Personal Loan to Pay Rent

There are a number of disadvantages to using a personal loan to pay rent. Because personal loans charge interest, you’ll pay more for the money you borrow. That can add up over time, depending on the length of the loan. A personal loan will also add to your debt. Each month you’ll need to make a loan payment until the loan is fully paid off.In addition, you’ll typically need a good credit score and strong credit history to get the most favorable interest rate and loan terms. And if you miss loan payments, your credit score may be negatively affected. Payment history is an important factor in determining your credit score.When deciding whether to use a personal loan to pay rent, you should weigh the advantages and disadvantages.
A personal loan can provide extra time to pay your rent Personal loans charge interest, so you will end up paying more in the long run
Personal loans typically have wide borrowing rangesPersonal loans can increase your debt
Personal loans usually don’t require collateralYou have to qualify for the personal loan
Getting a loan can help build your credit historyIf you miss loan payments your credit can be negatively impacted

Alternatives for Financing Your Rent Payment

If you are having trouble paying your rent, your first step should be to check with your landlord to see if they can give you extra time to make your payments. If your landlord won’t work with you, there are other alternatives for financing your rent besides personal loans. One option is to pay your rent with a credit card, as long as your landlord will accept credit card payments for rent. Some landlords may charge you a fee to pay your rent with a credit card. Even so, this may buy you some time. If you can qualify for a 0% intro APR credit card, you won’t be charged interest during the introductory period. Just try to pay off your balance before that time period ends. There are other loan options available as well, like payday loans and payday alternative loans. Payday loans are usually short-term loans for a small amount. However, payday loans typically charge high fees and have difficult repayment terms. Payday alternative loans are also short-term loans for a small amount, and they are offered by some federal credit unions. Payday alternative loans have high interest rates, but not as high as payday loans. However, payday alternative loans can be more difficult to qualify for and are only available to qualifying members of the credit union. Other options to consider for help with rent payments are getting a roommate to split the cost with you, or moving to a cheaper apartment. If you are in a desperate financial situation, you could look into hardship loans or deferred personal loan payments. A hardship loan is a personal loan that allows you to borrow money during a time of financial crisis. Loans with deferred payments let you postpone monthly payments without incurring late fees or damaging your credit. Both of these could be options if you are in a financial emergency and need money to pay rent. 

The Takeaway

You can get a personal loan to pay rent, but it can be an expensive option because of interest charges involved. If possible, explore other alternatives first, such as speaking to your landlord to ask for more time to pay your rent. However, in certain circumstances, taking a personal loan may be necessary to get your rent paid. Weigh your options carefully.

3 Personal Loan Tips

  1. Personal loan interest rates vary from lender to lender, but generally depend on your credit score. With one online application, Lantern by SoFi makes it easy to find and compare the personal loan interest rates that you qualify for.
  2. If the interest rates you’re being offered seem too high, try lowering the loan amount. Generally, the larger the loan, the greater the risk for lenders, who likely charge a higher interest rate for the increased risk level.
  3. Watch out for lenders who advertise “guaranteed” loans. Legitimate lenders will want to know your creditworthiness before offering a loan.

Frequently Asked Questions

Is it smart to take out a loan to pay bills?
Can you use personal loan money for anything?
What payment methods can you use to pay rent?

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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