Taking Out A Personal Loan For Rent: What To Know
Miranda Crace6-minute read
UPDATED: August 17, 2023
Struggling to afford rent payments can be distressing, no matter the reason for the struggle. According to a January 2023 report on housing affordability in Q4 of 2022, for the first time ever, the average American is considered rent-burdened (i.e., paying more than 30% of their income in rent). Often, renters are blameless in an economy that’s experienced rising rent costs coupled with stagnant wages over the last few years. In other words, if paying your rent is difficult right now, you’re far from alone.
If all other alternatives fail, one potential way to make your rent payments on time and in full is to take out a personal loan to cover the cost of rent. However, while securing a loan for rent can help keep you on track with payments, it may create more issues than it solves in some cases.
Let’s explore the types of loans you can use to pay rent, how to determine whether you should take out a loan for rent payments, and a few alternatives to taking out a loan for rent.
Can You Use A Personal Loan For Rent?
You technically can use a personal loan for rent, but it’s often a good idea to carefully weigh other options – which we’ll discuss later – before deciding to take out a loan. If you determine a personal loan makes sense for you after evaluating other choices, you’ll then have to select the type of personal loan most suitable for you.
The type of loan you need usually depends on your financial standing. Financial institutions typically offer two options for personal loans: secured and unsecured.
Secured Personal Loans
A secured personal loan requires you to put up a valuable asset, like stocks or your car, as collateral, which your lender can take if you fail to repay your loan. Since collateral protects lenders in the event of a borrower defaulting on a secured loan, borrowers of secured personal loans tend to have lower interest rates and higher borrowing limits.
If you have a low credit score, being approved for a secured loan can be easier than being approved for an unsecured loan. So, if you’re in a tight financial position, you may be better off applying for a secured loan than an unsecured loan to pay your rent.
Unsecured Personal Loans
Unsecured personal loans typically have a higher interest rate to act as protection for lenders in place of collateral. Borrowers are usually approved based on their credit history and income, so an unsecured loan can be a good option for creditworthy individuals who don’t want to put up collateral. If you’re generally in good financial standing and unexpectedly fall short on rent, an unsecured loan may be right for you.
Pros And Cons Of Using A Personal Loan To Pay Rent
Taking out a personal loan can provide short-term relief if you don’t have access to the funds you need to pay your rent. However, some downsides of using a personal loan for rent are worth weighing against the immediate benefits.
Rent Loan Pros
Rent Loan Cons
Quick turnaround time to receive funds
Extra debt to pay
Potential for credit improvements
A short-term drop in credit score
Fairly flexible credit score requirements
The risk of losing collateral
Reduced expenses compared to credit cards
Pros Of Using A Personal Loan To Pay Rent
- Faster money: You have quick access to funds, which can be valuable if you have an upcoming due date.
- Improved credit: You can improve your credit history and raise your credit score by making on-time payments.
- Decent accessibility: Some personal loans are accessible to a wide range of borrowers, generally those with a credit score of 610 or higher.
- Reduced expense compared to credit cards: Personal loans may have favorable terms, like flexible repayment periods and lower interest rates than credit cards.
Cons Of Using A Personal Loan To Pay Rent
- More debt: You’re taking on more debt and reducing the amount of cash you’ll have available for future rent payments as you make monthly payments toward your loan.
- A short-term drop in credit score: You can damage your credit score by making late payments or missing payments, and lenders may run a hard inquiry on your credit before approving you for a loan.
- The risk of losing collateral: If you go with a secured loan, you risk losing the asset you put up as collateral if you default on your loan.
- Financing fees: You’ll likely have to pay loan interest and, depending on your lender, other costs like origination fees.
Questions To Help You Decide If You Should Take Out A Personal Loan
By and large, using a personal loan for rent should be a last resort. But in some cases, it may be the appropriate course of action for an interim solution to avoid eviction.
With the pros and cons in mind, you might still wonder when it makes sense to take out a personal loan to pay rent. Reflecting on the questions below may provide clarity on whether it’s the right option for your circumstances.
Is A Personal Loan A Temporary Fix?
If you’re between jobs or you incur unexpected costs like emergency medical bills, a loan may be a useful option for covering a couple months of rent while you get back on your feet. However, if being short on rent seems to be a recurring issue, a loan may only be a temporary solution.
Will You Be Able To Repay Your Personal Loan Quickly?
If you’re unsure whether you’ll be able to repay your loan on time, it may not be your best option. Failure to repay your personal loan in a timely manner can negatively impact your credit, and you could encounter penalty fees.
Can You Afford To Take On More Debt?
As a general rule-of-thumb, your debt-to-income ratio (DTI) should be no more than 28% if part of that debt includes rent payments. If your DTI is already above 28%, or taking out a loan for rent would push your DTI to this level, an alternative may be better for your financial wellness.
Alternatives To Taking Out A Personal Loan For Rent
A variety of options are available to help you pay your rent. It’s just a matter of finding the one that makes the most sense for your financial situation. Below are a few alternatives to immediately taking out a personal loan for rent payments.
- Talk with your landlord. Having a conversation with your landlord may be a good place to start if you’re unable to pay rent. Be transparent about your situation and see if your landlord can adjust your current rent bill, if they’ll accept partial or late payments, or if they can offer other solutions to lighten your financial burden.
- Explore rental assistance programs. In response to economic hardships brought on by the COVID-19 pandemic, the federal government created an emergency rental assistance program for eligible renters. You may also want to check your qualifications for other forms of rent assistance, like a voucher or public housing, if you regularly struggle to pay rent.
- Consider an emergency loan. Also called a same-day loan, an emergency loan is one option if you suddenly end up in a financial bind and can’t pay your rent. From payday loans to credit card cash advances, a number of emergency loan options are available. However, it’s best to avoid these loans whenever possible, due to their exceedingly high interest rates and the limited amount of time you often have to pay the loan back in full.
- Reach out for legal advice. It’s important to be aware of your legal protections and rights as a tenant, especially if you can’t pay your rent. To discuss your options, check out the Consumer Financial Protection Bureau’s resources on how to find an attorney in your state.
Being aware of the alternatives to using a personal loan to pay rent can be beneficial. By researching your options, you may find a way to avoid taking on personal loan debt for rent payments.
FAQs: Taking Out A Personal Loan For Rent Payments
If you’re still unsure about whether you should take out a personal loan for rent payments, you’re not alone. We answered a few questions people frequently ask about using personal loans for rent.
Can I get a personal loan for an apartment?
You can get a personal loan for an apartment, whether it’s to pay rent or put down a security deposit. However, it can be worth exploring other options to see if you can avoid making monthly loan payments on top of monthly rent payments for your apartment.
How can I get a loan for rent?
You can potentially get a personal loan for rent by directly contacting your preferred financial institution and submitting a loan application. For further assistance with getting a personal loan for rent, you may want to consider connecting with a financial advisor.
Is it a good idea to use a personal loan for rent payments?
Using a personal loan for rent can offer relief for a short period of time, but taking on more debt can increase your risk of adverse financial consequences. It’s best to look into other ways to acquire the funds needed to pay rent before deciding to take out a personal loan.
A personal loan can help with rent payments if you’re tight on money in the short term, but your financial future could suffer as a result. With your long-term financial goals in mind, it’s important to evaluate other means of assistance on rent payments and make the right decision for you.
If you decide a personal loan is the right approach to ensuring you can pay rent, you can apply online today with Rocket LoansSM.
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