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When gaps in income occur, such as through a loss of employment, your rent bill can be the most difficult to pay because it’s often your largest expense. In these situations, a personal loan for rent may seem like a feasible short-term fix.
But personal loans are an expensive way to cover rent and should be a last resort. Learn about more affordable options, including where to find local assistance for renters.
Rent prices across the country have been steadily rising over the past decade, leaving many renters struggling to keep up with payments. In fact, a recent report found that almost two-thirds of renters now spend over 30% of their income on housing costs – the threshold for being considered “rent-burdened”.
With wages failing to keep pace with rent increases, more and more people are facing the difficult situation of not having enough money to cover their monthly rent payment. When you find yourself in this position it’s natural to start looking for solutions like taking out a personal loan to pay the rent.
But is getting a loan to pay rent really a good idea? In this comprehensive guide, we’ll cover everything you need to know about using loans for rent including
- Types of loans you can use for rent
- Pros and cons of getting a rent loan
- Alternatives to taking out a loan
- How to decide if a loan is right for you
Types of Loans You Can Use for Rent
If you’ve decided to take out a loan to pay your rent, you have several options to choose from:
Personal Loans
Unsecured and secured personal loans can both be used for rent payments.
Unsecured loans are based solely on your creditworthiness. They typically have higher interest rates but don’t require any collateral.
Secured loans require an asset like your car or home to be used as collateral. They usually have lower interest rates but put your collateral at risk if you default.
Payday Loans
Payday loans provide fast access to a small amount of money, usually $500 or less. You’ll repay the loan on your next payday, typically within 2-4 weeks. Payday loans generally have very high interest rates.
Cash Advances
A cash advance uses your credit card to borrow money from an ATM. This can provide quick cash, but has high interest rates and fees.
Emergency Loans
Emergency loans are small, short-term loans designed to cover unexpected costs. They may have more affordable rates than payday loans or credit cards.
Co-signed Loans
If you have poor credit, a co-signed loan with a creditworthy co-signer may help you qualify and get better loan terms. But the co-signer is equally responsible for repayment.
Pros and Cons of Using Loans for Rent
Before taking out a loan, weigh the potential pros and cons:
Pros
- Fast access to cash
- More affordable than credit cards or payday loans
- Can help build your credit with on-time payments
Cons
- You take on debt and pay interest charges
- Hurts your credit if you can’t repay the loan
- Doesn’t address underlying issues with affording rent
Alternatives to Taking Out a Loan
Since loans can be risky and expensive, first explore some alternatives:
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Ask your landlord for an extension – Explain your situation and request extra time to pay. Offer to pay late fees or a portion of the rent.
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Apply for rental assistance – Federal, state, and local programs may help cover a portion of your rent.
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Find a roommate – Splitting costs with a roommate can significantly reduce your portion of the rent.
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Negotiate a payment plan – Propose making partial payments over a few months to get caught up.
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Borrow from family/friends – An interest-free loan from family or friends may be possible.
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Look for community resources – Nonprofits, churches, etc may be able to provide rental assistance.
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Talk to your employer – Ask for an advance on your paycheck or salary if possible.
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Use savings – Tap into any emergency savings funds you have as a last resort.
How to Decide If a Loan Is Right for You
If the alternatives don’t fully cover your rent deficit, taking out a loan may be your only option to avoid eviction. Here are some key things to consider:
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Can you qualify? – Check loan requirements and your credit score to see if you may qualify and get reasonable loan terms.
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Can you afford the payments? – Make sure the monthly payment fits within your budget, factoring in interest.
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Is your situation temporary? – Loans make more sense for one-time emergencies versus ongoing issues.
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Are you addressing the core problem? Loans provide temporary relief. You need a long-term plan to cut costs or increase income.
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Are the risks acceptable? – Consider potential damage to credit and budget from taking on debt.
The Bottom Line
Getting a loan to pay your rent can provide critical help in the short term, but also comes with risks. Thoroughly evaluate your alternatives first, and use loans cautiously only as a last resort. Have a plan to repay the loan and get your overall finances back on track so you can consistently afford rent in the future. With some strategic planning, you can overcome temporary setbacks and housing cost challenges.
A personal loan for rent is an expensive option
Taking a loan for rent can address a budget shortfall, but you’ll need to consider the risks.
“I think if you are going to go the personal loan route, you have to be realistic about how much debt you will be accumulating,” says Sarah Hamilton, a San Francisco-based certified financial planner.
Here’s what to know before taking a personal loan to pay your rent.
- Taking a personal loan adds debt. Each month you’ll owe both your rent as well as an installment payment on the new loan. If you take a $6,000 personal loan with a 18% annual percentage rate and a 12-month term to pay for three months’ rent, youll still need to find funding for a monthly $550 loan payment.
- You’ll owe interest on the loan. Many short-term loans have high rates, and longer repayment terms mean you pay as much interest as you might for a couple months’ rent. For example, a $10,000 personal loan with a 25% APR and 36-month term would cost $4,314 in total interest.
- You need a solid credit score and credit history to get a good interest rate. Personal loans with lower interest rates are typically only available to people with good or excellent credit scores (690 credit score or higher).
- Your credit will take a hit if you miss loan repayments. One of the key factors that determine your credit score is payment history or how consistently you make on-time payments on your debts. Missing even one monthly payment can ding your score as much as 100 points.
When taking a personal loan for rent may make sense
If you’re thinking of taking a personal loan to pay rent, consider how quickly the loan can be paid back. If you need a loan as a short-term financial raft, and you’re certain you’ll soon have the funds to pay it off, borrowing a small amount may make sense for you.
For example, if you’re starting a new job and you’ll have a temporary gap between paychecks, or you’re moving apartments and need help paying your new security deposit while awaiting a refund of your old one, you may be able to pay off the debt quickly.
But personal loans still come with interest. Calculate your payments below to see if a personal loan is the right option for you.
It’s best to avoid borrowing when possible. Building up an emergency fund of even $500 can prevent a similar cash flow shortage in the future.
Take Out A Loan To Pay For My Rent-To-Own House?
FAQ
Can I get a loan from my bank to pay rent?
How to pay rent when you’re short?
What is rent paid on borrowed money called?
Can I pull out a loan for an apartment?
Can you 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?
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.
Can you get a loan to pay rent?
The short answer is yes, you can. Using a loan to pay rent is an option. You can obtain a personal loan to pay rent and for some people, it’s a good idea. However, before you take out rent loans, you need to consider if it’s the right choice for you.
How do I get a personal 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?