4 Expenses that Personal Loans Don’t Cover

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You can use the money from a personal loan for almost any purpose, such as debt consolidation or home improvement. But personal loan does not cover these 4 expenses. ,Shutterstock,

Personal loans can be a good option when you need extra cash to pay almost any expense. Although some personal loan Designed for specific uses such as debt consolidation, many lenders offer personal loans that you can use for almost any purpose.

But no matter how flexible your lender is, there are certain expenses that you cannot pay with personal loan funds.

If you need a personal loan to consolidate debt, Credible makes it easy View your pre-qualified personal loan rates From different lenders, all in one place.

1. Pay for College

You generally cannot use personal loan funds to pay for college tuition. This can be risky for a lender, as many student borrowers have little or no credit history and are not employed.

While you live in school, such as housing or transportation, you may be able to use a personal loan to pay for other expenses, but federal student loans will be the cheapest option because they have flexible repayment plans.

If you take a personal loan for educational expenses, make sure you can afford the monthly payment while in school.

If you need a loan to pay for college, start with federal loans and then use private student loans to fill any gaps in education costs. After graduation, you can consolidate federal student loans or refinance student loans, possibly a low interest rates or monthly payment.

Student Loan Refinance Vs. Consolidation: What’s the Difference?

2. Making a Down Payment on the Home

You will not be able to use a personal loan for down payment on your new home. Traditional lenders as well as the Federal Housing Administration (FHA) have strict guidelines on where you source the money used for your down payment.

The U.S. Department of Housing and Urban Development (HUD) lists acceptable sources of funds for down payment and closing costs, including:

  • earnest money deposit
  • money from your bank account
  • money in hand
  • private thrift club
  • savings bond
  • IRA or 401(k)
  • stocks and bonds
  • Gift
  • personal property sales
  • commission from sales
  • Grants and loans (especially for down payments)
  • employer assistance program

Unacceptable credit sources include:

  • unsecured signature loan
  • cash advance on credit card
  • Borrowing against your home or other property
  • other unsecured financing

When you apply for a traditional or FHA mortgage, you will need to document the source of all the funds used for the purchase of your home. The lender will verify each source before approving you for a mortgage loan.

If you need help with the down payment on your mortgage, go here HUD website To see what programs are available in your state.

Need Mortgage Payment Help? consider these options

If you are already a homeowner and you are considering a personal loan for a home improvement project, visit Credible Compare Personal Loan Rates from various lenders.

3. Certain Business Expenses

Many small-business owners take advantage of this personal loan to cover expenses. You may be able to use a personal loan for some business-related expenses, but lenders may restrict other ways you can spend the money. Since rules vary by lender, you should talk to your lender about why you are getting the loan and ask them about any restrictions before applying.

Taking out a personal loan instead of a business loan to cover business costs carries some risk. you will trust yourself personal credit score To qualification And if you have trouble repaying the loan, your credit score can take a hit.

In addition, through several loan options small business administration Offer favorable repayment terms and greater flexibility. SBA loans may take longer to process, but you may qualify for a higher loan amount than a personal loan. And the interest you pay on an SBA loan may be tax deductible.

Other options for personal loans for business expenses include a business credit card, business lines of credit, and grants.

Personal Loan for Small Business: What to Know

4. Gambling and Illegal Activities

When you take out a personal loan, lenders will have a clause that specifies that you cannot use the money for gambling or illegal activities. Lenders will not fund gambling because it is a very high risk activity, and they may lose their money if you are unable to repay your loan.

Lenders may not knowingly provide loans for illegal purposes, or they may face legal problems. Money laundering is prohibited, so lenders cannot legally lend money for illegal activities.

If you need a personal loan for an unexpected expense or to consolidate debt, Credible makes it easy View your pre-qualified personal loan rates From different lenders, all in one place.

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