December 7, 2023


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It’s now possible to get a personal loan with an under-3% interest rate. Is it time to rethink how you’re paying for these 5 things?

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In 2020, about 19.4 million Americans had a personal loan, according to LendingTree. That’s likely due, in part, to the fact that personal loans can be pretty easy and quick to obtain — you might be able to apply, get approved and receive funds within 24 hours — and their rates are low right now. See the lowest rates you can get on a personal loan here.

Indeed, for a certain type of personal loan and for highly qualified applicants, Lightstream has rates under 3%. Though that is at the very low end, other issuers have rates starting at around 6%. And that, too, can save you money: “If you only make minimum payments, $5,000 of credit card debt at 16% could keep you in debt for more than 15 years and cost you more than $5,400 in interest. Your minimum payment would start at $117. If you get a 5-year personal loan at 6%, you’d pay about $97 per month and you’d be debt-free in 5 years with a total interest bill of $800,” says Ted Rossman, senior industry analyst at Bankrate and  His conclusion: “If you can qualify for a lower rate than the alternatives, a personal loan can be an attractive way to consolidate credit card debt, medical debt, fund your business or improve your home.” Compare personal loan rates here.

That said, personal loans come without pitfalls. They are unsecured debts, so you may pay more in interest than you would with say an auto loan or mortgage, points out Lauren Anastasio, a certified financial planner at SoFi — and, of course, the rates you get will be better the better your credit score and debt-to-income ratio are, she adds. You should also watch out for the origination fee, says Annie Millerbernd, a personal loans expert at NerdWallet. These can range from 1% to 6% of the loan amount based on your credit, or it can be a one-time flat rate, she explains.

5 things you might want to use a personal loan to pay for:
  1. To pay off credit card debt
    Rossman says a personal loan can be an attractive way to consolidate credit card debt. “Personal loan rates can be lower than credit cards, especially if you have good credit, and they offer a fixed payback period, whereas credit card debt could potentially drag on for decades and accumulate a ton of interest,” says Rossman. Compare personal loan rates here.

  2. To pay off medical debt
    Some hospitals and doctors offer lengthy payback periods with low or no interest which would make those plans better options than personal loans. “But, if you’re paying a higher rate on your medical rate and you can’t negotiate it down, a personal loan can be desirable,” says Rossman.

  3. To pay off a big purchase, such as a home renovation you need to do ASAP
    Millerbernd says personal loans work well for home improvement projects that you want to start quickly, like a roof repair, because you can usually go from application to funding in a week or less. “You can use a personal loan for a bathroom or kitchen remodel, but HELOCs and home equity loans will probably have lower interest rates, so it could be worth waiting a few extra weeks to see the money in your account,” says Millerbernd. But there’s another advantage to personal loans for home repairs too, Rossman adds, “You’re supposed to pay personal loans back of course, but the consequences aren’t as severe as defaulting on a mortgage or home equity loan or HELOC.” Compare personal loan rates here.

  4. Funding a business “Personal loans are often easier to obtain than small business loans. That’s especially true if you’re just starting out and don’t have much, if any, business revenue,” says Rossman. And if you have good credit, personal loans can charge much lower interest rates than business and personal credit cards, which, according to, average 14.22% and 16.4% respectively.

  1. Refinancing private student loans “Refinancing private student loans with a personal loan could make sense, but I wouldn’t recommend it for federal student loans because they have more generous forbearance and forgiveness policies,” says Rossman. To figure this out you just look at the rate you’re paying on your private loans vs the rate you can get on your personal loan, along with the origination fee, application fee (if there is one) and any protections and benefits that come with the student loan. Compare personal loan rates here.

3 things you should not take a personal loan out for:
  1. Purchases that have better loan options, like school or buying a car or real estate
    Anastasio says personal loans should be avoided to finance purchases for which there are more appropriate borrowing options. “Examples include financing school or educational expenses with a personal loan instead of a student loan, the purchase of a vehicle when an auto loan would be available or for real estate when a mortgage would be the more appropriate choice,” says Anastasio.

  2. Discretionary purchases like vacations or retail splurges
    Personal loans are too big of a commitment, and an expensive one at that, for short-term, discretionary purchases. “Avoid personal loans for frivolous expenses that you can’t afford. You may really, really want that beach vacation, and you may be able to get a lender to give you money for it, but that doesn’t mean getting a personal loan is a good idea,” says Matt Schulz, chief credit analyst at LendingTree.

  1. A wedding
    Just like with vacations and big ticket items, Millerbernd says, “A personal loan might have a lower interest rate than your credit card, but this is one of those times when you’re better off adjusting your budget or delaying so you can pay in cash.” Also see: 8 things to consider before you refinance your mortgage