Personal loans are a versatile funding option, and they usually have lower rates than credit cards — good news if you want to keep your interest costs low. With these loans, you receive a lump-sum amount and pay it off in monthly installments over a set term. Generally, personal loan terms range from two to seven years, although they vary depending on the lender.

As mentioned, personal loans are versatile and can be used for many purposes. If you’re considering a personal loan to cover an upcoming expense, here’s how they differ from credit cards, how you can use one, and what you’ll need to qualify.

Many people turn to personal loans for debt consolidation, and with good reason. These loans typically have relatively low rates compared with other types of financing, like credit cards. If you have high-interest debts, using a personal loan to repay them could help you save on long-term interest costs.

Here’s a quick example:

Let’s say you have a total balance of $7,500 across two credit cards, with an average interest rate of 22.5%. It would take you approximately five years and six months to repay your balance if you make $200 monthly payments. During that time, you’d pay $5,575.14 in interest.

If you qualified for a five-year $7,500 personal loan with a 10% rate and used that to pay off your credit card debt, your monthly payments would drop to $159, and you’d pay just $2,061 in interest over your loan term. That’s a total savings of around $3,500.

Even if you have insurance, healthcare costs can be unpredictable. This is especially true in the event of an acute illness or serious medical issue. A personal loan can cover a number of medical expenses, including elective surgeries, necessary dental work, and even insurance coverage gaps after a trip to the emergency room.

Car repairs can amount to several hundred — or even thousands of — dollars, depending on the type of work your vehicle needs. And many times, these repairs crop up unexpectedly. If that’s the case and your emergency savings won’t cover the cost, a low-rate personal loan could be a smart alternative to get you on the road again.

Read more: What happens when your car is totaled?

All too often, pet parents must choose between their animal's well-being and their bank account. This is especially true if a pet needs urgent treatment after an accident or illness. A personal loan is worth considering if you don’t have enough saved to pay the vet bill, or if you must pay a large amount upfront before getting reimbursed by your pet insurance policy.

Homeowners often turn to personal loans to cover the cost of emergency home repairs or planned improvements. These costs can amount to tens of thousands of dollars, which can be difficult to cover up front, even with sufficient emergency savings. A personal loan can be a better choice than a credit card, as your rate and monthly payment are likely to be lower.

Read more: 4 types of home renovation loans and how to choose

Relocating is a costly endeavor, especially if you’re planning a long-distance move and packing up a house full of belongings. Rather than paying for supplies, truck rentals, or professional moving services in one lump sum, a personal loan could help spread this cost out over time into more manageable monthly payments.

Read more: How much does moving cost?

The average wedding costs amount to $33,000 in 2025, according to bridal website The Knot. While many couples turn to their savings first to pay for their big day, funds may fall short due to large guest lists and high vendor or venue costs. If you’re currently engaged, a personal loan for your wedding could cover expenses you don’t want to pay for with a credit card.

Personal loans and credit cards can be used for many of the same reasons, but it's important to know the strengths and risks of each. Here’s a quick comparison:

Because there’s no standard set of borrower requirements for personal loans, one lender may have more flexible requirements than another. But in general, you’ll need the following to be eligible for a personal loan:

• Credit score: You’ll likely need a minimum credit score of at least 580 to qualify for a personal loan, though some lenders have stricter requirements. Applicants with excellent credit are likely to get the best rates and terms.

• Income: Some lenders may have minimum annual income requirements, while others will simply require you to have consistent monthly income.

• Debt-to-income ratio: Your lender will want to ensure you can afford your monthly payments, so they’ll also look at your debt-to-income ratio (DTI). This measures your total outstanding debts against your total income, and lenders often prefer a DTI ratio of 36% or less.

Yes, you can use a personal loan to buy a car. However, an auto loan may be a better option; auto loans tend to be easier to qualify for and often have lower interest rates than a personal loan.

Related: Can you buy a car with a credit card?

In some cases, it is possible to use a personal loan to start a business. However, some lenders restrict borrowers from using personal loans for business purposes. Additionally, personal loans are issued to you as an individual, which puts your credit at risk if you can't repay the loan. It may also be difficult to find a personal loan that will let you borrow the amount you need; small business loans often have higher loan amounts.

It may be possible to use a personal loan for investing, but many lenders prohibit funds from being used for investment purposes. Make sure you read your loan’s terms and conditions carefully beforehand.

Additionally, any profits you make from your investment may be taxable, and if your investment loses money, you’re still on the hook to repay the full amount of the personal loan as outlined in the repayment terms. A margin loan from a brokerage firm may be a better bet if you’re looking to invest borrowed money.

This article was edited by Alicia Hahn.