The big question is: How can a personal loan help me? Lets give an example, meet Sam, 24, just landed a full-time job after years of working part-time and gig jobs. He’s got a used car that’s making a strange noise, a credit card balance that won’t seem to go down, and his best friend just asked him to be the best man at his wedding—meaning a tux rental and travel expenses he can’t really afford.
Like many young adults, Sam doesn’t have a huge emergency fund yet. His credit score is okay but not great. He’s heard of personal loans but isn’t sure if they’re a smart option or just another way to get into debt.
So, what can Sam (and you) really use a personal loan for? Let’s break it down.
Yes—but only if you use it wisely.
A personal loan adds an installment loan to your credit mix, which can boost your credit score as long as you make on-time payments. If you’re currently relying on credit cards with high interest rates, a personal loan can help you pay them off faster and lower your credit utilization, which also improves your score.
Good idea: Using a personal loan to consolidate credit card debt at a lower interest rate.
Not great: Taking a loan just to spend it on unnecessary purchases, which could lead to more debt.
It can be. Credit cards often come with high-interest rates, and if you’re only making minimum payments, your balance could take years to pay off.
With a debt consolidation loan, you can combine multiple credit card balances into one fixed monthly payment—usually with a lower interest rate. This means you’ll pay off your debt faster and save money on interest.
Example: Sam has $5,000 in credit card debt with a 22% interest rate. If he gets a personal loan with a fixed 10% APR, he could cut his total interest payments in half while keeping a predictable repayment schedule.
Yes, but not for a down payment.
Most lenders won’t let you use a personal loan for a car down payment (they prefer auto loans for that). However, if your car needs urgent repairs and you don’t have enough savings, a personal loan can be a lifesaver.
Example: Sam’s car breaks down, and the repair bill is $1,500. Instead of putting it on a high-interest credit card, he takes a personal loan with a fixed interest rate and structured repayment plan.
Good idea: Using a personal loan for necessary car repairs.
Not great: Using it for a luxury car upgrade when you can’t afford it.
Absolutely. Personal loans are a great option for unexpected expenses like medical bills, funeral costs, or emergency home repairs.
Example: Sam’s roommate moves out unexpectedly, leaving him stuck with double rent for the next two months. A small emergency loan helps cover the gap while he finds a new roommate.
It depends on the situation.
Personal Loan: Best for large, planned expenses (like medical bills, wedding costs, or home improvements) because they have fixed interest rates and predictable payments.
Credit Card: Best for small, short-term purchases where you can pay off the balance quickly to avoid interest charges.
Example: Sam’s best friend’s wedding is coming up, and he needs $1,000 for travel, hotel, and a tux rental. If he puts it on a credit card and doesn’t pay it off quickly, he could end up paying hundreds in interest. A personal loan with a lower rate and fixed term helps him budget better.
Good idea: Using a personal loan for planned big expenses with a repayment plan.
Not great: Using a personal loan for impulse shopping.
Some things sound like a good reason to take out a loan but could cause financial trouble later.
Vacations: It’s tempting, but paying off a trip for years isn’t fun. Consider saving up instead.
Gambling or risky investments: A huge red flag—you could lose everything and still owe money.
Daily expenses: If you’re struggling to cover rent, groceries, or bills, a personal loan might not be the best fix. Consider budgeting or extra income sources first.
Missing payments hurts your credit score and can result in late fees or even collections. Before taking out a loan, ask yourself:
If you’re struggling with payments, talk to your lender—they may offer options like deferment or restructuring the loan.
Yes, but your options might be limited.
Example: Sam’s older brother Mike is rebuilding his credit after a rough patch. Instead of a high-interest personal loan, he gets a credit-builder loan, makes on-time payments, and improves his credit score before applying for larger loans.
Personal loans can be a great financial tool when used correctly. They help with:
Debt consolidation (lowering credit card interest and simplifying payments)
Emergency expenses (medical bills, car repairs, sudden rent increases)
Planned big purchases (weddings, home improvements, job training)
But they shouldn’t be used for:
Impulse purchases
Non-essential expenses (vacations, luxury items)
Daily expenses you can’t afford
For Sam, a personal loan helped cover car repairs, pay off credit card debt, and budget for his best friend’s wedding—without adding financial stress. But before taking out a loan, always ask yourself: Will this help my finances in the long run, or just add more debt?
If you’re considering a personal loan, visit First Alliance Credit Union first—they can help you find the best option for your needs.