The Benefits of a Personal Loan
Personal loans are flexible and simple.
Published Tuesday, September 23, 2025 to Advice
Life comes at you fast and there are so many things you pay for.
Some things, like vacations or large events, are fun to spend money on. Other things, like home repairs or medical bills, are not fun but necessary.
Either way, a personal loan may be able to take the stress out of financing those things that come up throughout your life.
Let’s talk about personal loans, the pros and cons, and how you can apply.
What Is a Personal Loan?
A personal loan is a type of financing that allows you to borrow a lump sum of money. Then, you repay the loan in fixed monthly installments, usually with a fixed interest rate.
Many times, personal loans are available for terms between 12 – 60 months, but this may vary depending on your financial institution.
And, unlike many other types of loans, collateral is usually not required. Your personal loan is secured by your signature.
What You Can Use a Personal Loan For
A personal loan has very few restrictions. You can use it for a wide variety of things. These may include, but are not limited to:
- Debt consolidation
- Unexpected medical costs
- Weddings
- Home improvements and repairs
- Moving costs
- Vacations
You could also pay for many of these things with a home equity loan or HELOC. But, if you don’t have enough equity in your home or don’t want to borrow against it, a personal loan may be just right for you.
What You Can’t Use a Personal Loan For
There are not very many limits on what you can use a personal loan for. But there are some.
Here are some of the things that many lenders prohibit you from using a personal loan:
- College tuition or student loans
- Down payment on a home
- Business expenses
- Investments
- Gambling
There are specific loans specially tailored to some of the items above. For example, business loans can be used to start a business, pay for business expenses, or even invest in a business.
Restrictions may vary between financial institutions.
Benefits of Using a Personal Loan
There are several benefits to using a personal loan:
- Lower interest rate than many credit cards
- Very few use restrictions
- Fixed payments and repayment period
- No collateral – secured by your signature
- Can help build your credit
| Average Personal Loan Rate | Average Credit Card Rate |
|---|---|
| 16.48% APR1 | 24.33% APR2 |
| 1 Rate for consumers with “good credit”, according to nerdwallet.com, June 2025. 2 Rate for new credit cards, according to lendingtree.com, June 2025. |
|
Cons of Personal Loans
For all their benefits, a personal loan may not always be the best option for you. Here are a few possible drawbacks of a personal loan:
- Higher rates than some other loans, like home equity loans
- Shorter repayment periods can lead to higher monthly payments
- No continual borrowing
| Average Personal Loan Rate | Average Home Equity Loan Rate |
|---|---|
| 16.48% APR1 | 8.26% APR3 |
| 1 Rate for consumers with “good credit”, according to nerdwallet.com, June 2025. 3 According to bankrate.com, June 2025 |
|
How to Apply for a Personal Loan
Applying for a personal loan is generally an easy process. In most cases, you can apply online at your preferred financial institution. Or you can stop into one of their branches.
You may be asked to provide documentation to prove you qualify for a personal loan. When you apply at Veridian, for example, you'll be asked to provide a proven record of job stability, good credit and a manageable debt load.
Once your application is complete and you’re approved for your personal loan, your financial institution will send the funds to you. In most cases, they will be transferred directly into your account.
Alternatives to Personal Loans
Sometimes, a personal loan isn’t the best option. But that doesn’t mean you can’t get short-term financing for a purchase. Here are a few alternatives to personal loans:
Payday Alternative Loans (PAL)
Traditional payday loans are short-term loans with exorbitantly high interest rates. According to the Consumer Finance Protection Bureau, the average rate is about 400% APR.
Payday alternative loans (PAL) are similar loans offered by credit unions with much lower interest rates. The maximum rate for a PAL is 28% with a maximum application fee of $20.
Learn more about payday alternative loans from MyCreditUnion.gov.
Zero-interest Credit Cards
You may be able to find a credit card with an introductory rate of 0% APR. Shop around for these offers.
Home Equity Loans
If you own your home and have equity in it, you may be able to get a home equity loan or HELOC with a lower rate than a personal loan.
Buy-now, Pay-later Apps
Companies like Affirm, Afterpay and even PayPal offer options for paying for your online purchases in installments, sometimes without interest. Look for these payment options at checkout when shopping online.
Final Thoughts: Benefits of a Personal Loan
A personal loan is a versatile way to finance many things that come your way in life. There are very few restrictions to what you can use your loan for.
Veridian has flexible personal loan options with an easy application process. Click below to learn more or apply today!