What Are the Best Uses for a $5,000 Personal Loan? (2024)

FAQs

What is the best thing to say you need a personal loan for? ›

Debt consolidation, making large purchases or emergency expenses are all common uses for personal loans. But some lenders have specific use restrictions. The purpose of your loan may also impact the amount, interest rate and terms you qualify for.

The most common reasons to get a personal loan include emergency expenses, major purchases, home repairs, or milestones. A personal loan may be the right option if you have a good credit score, and your costs fall under these categories.

Generally, the only time you'll need to specify a purpose for your personal loan is if you're planning debt consolidation. In that case, your debt-to-income ratio may be assessed for what it would be after you pay off other debts (student loans, credit card balances, etc.) with the personal loan.

For example, a lender may not allow the proceeds of a personal loan to be used to pay for college tuition, repay another student loan, purchase a home, or start a business. As a result, the best reason to give when applying for a personal loan is one that the lender allows.

You can use a personal loan to pay for almost anything. Common uses include debt consolidation, home improvement projects and emergencies. Annie Millerbernd is an assistant assigning editor and NerdWallet authority on personal loans.

Be transparent: Be open and honest about your financial situation and your need for money. Explain why you need the money and how it will be used. When discussing repayment terms, be specific about the amount of money you need, when you need it, and how you plan to repay it.

Some common emergency reasons for borrowing money include debt consolidation, medical bills, and vet bills. Jerry Brown is a personal finance writer, owner of the Peerless Money Mentor blog, and a contributor to Credible.

What is loan answer in one sentence? ›

A loan is when you receive money from a friend, bank or financial institution in exchange for future repayment of the principal and interest. They can be unsecured, like a personal loan or cash advance loan, or they may be secured, like a mortgage or home equity line.

Making late payments

The late payment remains even if you pay the past-due balance. Your payment history may be a primary factor in determining your credit scores, depending on the credit scoring model (the way scores are calculated) used. Late payments can negatively impact credit scores.

Regardless of what you say your income is on your personal loan application, a lender will still verify this by checking the salary deposits into your bank account. If the figures don't match, the lender will rely on the income they see on your statements as this is the confirmed income you are living off.

Employer and income verification

Because lenders don't require you to put up collateral to back the loan, you must prove you have a steady stream of verifiable income to be approved. If you are traditionally employed, you can verify your income with a few documents, including: Pay stubs. Tax returns.

Tip: A stable income, high credit score and low DTI ratio increase the odds you'll be approved for a personal loan. However, some personal loan lenders will consider other criteria, such as your educational background or employment history, when reviewing your application.

The key is to get as specific as possible. For instance, if you need $700 for a car repair, tell your lender that the money is for that reason. You should also map out a repayment plan, like paying them back $70 a month for the next 10 months.

Be transparent: Be open and honest about your financial situation and your need for money. Explain why you need the money and how it will be used. When discussing repayment terms, be specific about the amount of money you need, when you need it, and how you plan to repay it.