If you’re in a bind and there aren’t many other options available to you, it is possible to get a personal loan for paying rent. However, you’ll need a solid credit score and credit history to get a good interest rate on a rental assistance loan.
Before you’d get a loan for rent, you may want to evaluate the costs involved and the pros and cons. Read on to learn more about getting a loan for rent payment.
Table of Contents
Key Points
• It is possible to use a personal loan for paying rent, but it’s generally advised against unless you can’t find another way to cover costs.
• Secured and unsecured personal loans, as well as high-cost payday loans, can be used for rent payments.
• Personal loans can offer competitive terms, versatility, and may help build credit if managed responsibly.
• Downsides include accruing interest and fees, increasing debt, and the risk of harming your credit score if payments are missed.
• Alternatives to loans for rent include negotiating with your landlord or seeking assistance through resources like 211.
What Types of Loans Can You Use for Rent Payments?
There are several different types of personal loans that you can obtain for paying rent. These include secured and unsecured personal loans for rent assistance, as well as payday loans.
Secured Personal Loans
Secured loans require putting up collateral, which is an item of value used to back up the loan. If the payments on the loan are not made, the lender can seize the collateral and sell it to make up for their losses. Some types of collateral that may be used include cash savings, stocks, a car, a boat, a home, jewelry, fine art, and future paychecks.
Securing a loan with collateral may result in a lower interest rate, but all conditions are dependent on what the lender is willing to take and what terms they’re willing to offer on a personal loan. Given that if you use a secured loan to pay rent and can’t repay it, you could lose your collateral, this may not be the best solution if you are already struggling financially.
Unsecured Personal Loans
Unsecured personal loans do not require collateral. Since the lender has fewer options for recovering the funds should the borrower default, these types of loans often come with higher interest rates and shorter repayment terms.
Payday Loans or Cash Advances
A payday loan, or cash advance loan, is a small, expensive loan you repay all at once, typically on your next payday. Interest rates and fees can be exorbitant. As a result, this type of loan should generally only be a last resort for covering rent payments.
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Reasons Why You May Need to Use Loans for Rent
Using a personal loan for rent isn’t something you’d want to do routinely. Before you signed your lease you undoubtedly gave thought to how much rent you can afford. But you may come across certain scenarios where it may make sense, such as when:
• You have a short-term financial setback.
• You’ll soon have the funds to pay the loan back.
• You have a good to excellent credit score.
• Your only other option to cover bills is a payday loan.
Keep in mind that while there’s a lot you can use a personal loan for, taking one out still involves assuming debt. If you’re not confident you can repay a rent loan, then it’s worth considering if you have any other options available to cover your rental costs for the month.
What Happens If You Do Not Pay Your Rent?
If you do not pay your rent, your landlord can start eviction proceedings against you. Laws vary from state to state and city to city, but it’s important to pay your rent on time.
If you know you’re going to have trouble paying rent, dig out your lease agreement and find out if you have a grace period, what the late fees are going to be, and who to contact if you need to pay late. If you reach out to your landlord before you miss a due date and explain your situation, they may be willing to give you a grace period and delay eviction proceedings or negotiate your rent in some other way.
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Is It a Good Idea to Use Personal Loans for Rent Payments?
Generally, experts advise against using a personal loan for paying rent. Ideally, you should have started an emergency fund that can cover these essential costs if something unexpected arises. Once you’re on your feet again, you can budget for future upsets. “If it works with your income, the 50/30/20 budget is one simple method for people starting to organize their finances. This budget allocates 50% of your income for essentials, like rent and bills; 30% to personal day-to-day spending; and 20% for savings or financial goals,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.
However, if you’ve decided that a personal loan is your best course of action, there are some positive aspects to obtaining loans for rent over other potential options. Of course, there are downsides to take into account as well.
Pros of Using Loans for Rent Payments
Personal loans are known for their flexibility and versatility. Typical personal loan requirements needed for approval make these loans available to a wide variety of people. Here are some of the upsides of turning to a personal loan for paying rent.
Potentially Competitive Loan Terms
A personal loan can come with competitive terms. If you’ve kept your credit in good shape, you may be able to qualify for a low interest rate with low fees and a reasonable repayment term. Your credit score doesn’t have to be perfect to be approved for a personal loan. The minimum required credit score for a personal loan can start at 580. But to get the best terms and rates, you usually need a credit score of at least 640.
Versatility and Accessibility
Personal loans are known for being flexible. Borrowers can use them for a wide variety of purposes. For instance, you can use a personal loan for debt consolidation or to cover home renovations, an upcoming vacation, or even rent, among other things. Plus, personal loans offer quick access to funds — sometimes even the same day you apply.
Could Help You Build Credit
If you make all of your payments on time, having a personal loan could improve your credit profile. Adding an installment loan can also improve your credit mix, which is factored into your score.
Affordability
Interest rates on personal loans are generally lower than interest rates for credit cards. Your landlord may not even be able to take a credit card payment.
Cons of Using Loans for Rent Payments
Using a personal loan to pay rent generally isn’t recommended unless it’s a last resort. There are a number of drawbacks to consider.
Additional Fees
Personal loans aren’t free. You may have to pay an upfront fee to take out the loan, not to mention late fees if you miss a payment or even prepayment penalties if you pay in advance. Look around for lenders that have competitive rates and few or no fees — they are out there.
Possible Harm to Credit Score
If you run into trouble making your loan payments on time, it could have a negative impact on your credit. This could make it harder to qualify for other types of loans, such as auto loans and mortgages, with favorable interest rates in the future.
Interest Rates
If you’re having trouble making your rent payment, other areas of your financial life may have taken a hit. This could mean the interest rate you’re given for a personal loan will be less than ideal. Even if you’ve been able to maintain great credit, you’ll still need to pay interest on a loan for rent.
Increased Debt
Personal loans add debt to your bottom line. You’ll pay more over time by financing your rent payment into a loan. If you’re experiencing financial woes, adding a loan payment on top of what you’re going through may not be a good option.
The Takeaway
It’s possible to obtain a personal loan for a wide range of purposes, including paying rent. However, it’s important to weigh the pros and cons of getting a loan for rent before you do so. You’ll owe interest (and possible fees), and you could do harm to your credit if you’re not timely about repayment. But if it’s your last resort, a loan for rent is an available option.
If you do decide to get a personal loan — whether for covering rent or another purpose — it’s important to shop around to find the best possible offer for you.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
FAQ
Are you able to use loans for rent payments?
Yes, you can use rent loans for payments. You may want to examine all your options before you do, though. Personal loans carry fees and interest, and if you miss payments, you can drag down your credit score.
Is it hard to get a loan for rent payments?
It can be hard to get a loan if you have poor or thin credit or a low income. A lender will analyze your credit score, credit history, and income to determine what amount you can afford to borrow and on what terms.
What type of loan is good for rent payments?
Personal loans are a flexible means to pay for a number of things, including rent. Payday loans and credit card cash advances are high-cost ways to make rent payments, and generally should be avoided.
What are the risks of using a personal loan to pay rent?
If you use a personal loan to pay rent and are not able to repay what you have borrowed and still keep up with future rent payments, you could find yourself in a financial hole that is difficult to dig your way out of. Defaulting on your personal loan payments will have a negative impact on your credit score, which is one thing a landlord might be looking at before agreeing to rent to you in the future.
Are there alternatives to using a loan if I cannot afford my rent?
If you cannot pay your rent and have attempted to negotiate a reduction or other rent relief with your landlord, other options besides a loan might be available depending on where you live. Call 211, a national nonprofit line for those struggling with rent and utility bills. The organization also maintains information about eviction regulations in local markets. Of course, defraying your costs by finding someone to share your home or breaking your lease and changing your living arrangement are also options.
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