If you use a personal loan to pay the first few months of your rent in advance or to pay your entire lease in advance, a flexible landlord might offer a discount on the rental rate.
Having the funds of a personal loan to back you up in the beginning, might be able to help you save some cash on rent in the long run.
Cons to Paying Rent With a Personal Loan
Despite possible advantages of using a personal loan to cover rent, there are also some disadvantages you need to know about.
1. You’ll pay interest on the loan
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Personal loans involve interest, so the amount you pay back will be more than what you actually paid in rent.
If you get a $10,800 personal loan with a 36-month term at 6% interest, you’ll pay about $328 a month. You’ll also pay an additional $1,028 in interest over the course of three years.
2. You’re putting yourself in debt
A personal loan puts you in debt, and this type of debt is different from buying a home because an apartment isn’t an asset.
Each mortgage payment builds equity and puts you closer to owning the property outright. Getting into debt to cover rent doesn’t increase your personal net worth. And unlike a mortgage, rent continues indefinitely.
3. You may underestimate your financial needs
If you’ve never lived on your own, you could underestimate your monthly expenses and borrow less than you need. Unexpected costs can create a financial bind and leave you cash-strapped.
You may anticipate needing $900 per month for the next 12 months and only borrow $10,800. If you end up spending an extra $150 a month, you’ll spend more than you allocated for each month and you’ll run out of money sooner than expected, making it difficult to cover your rent.
4. Can be harder to get a loan with no credit
Even though you can get a secured personal loan with no credit, there are no guarantees. Some lenders may reject your application if you don’t earn enough, or the bank may require a cosigner. This is someone who agrees to take responsibility for the loan if you default.
5. No guarantee that you’ll get an apartment
Even if you qualify for a personal loan, a landlord may consider you too risky and deny your rental application if you don’t have a prior rental history or little to no income.
Should You Take Out a Personal Loan for Rent?
While it is possible to get a personal loan to cover rent, this might not be the best decision financially.
If you can postpone moving out, you’re better off avoiding a personal loan and saving up your money. Truthfully, if you need a personal loan to move out, you’re probably not ready for this responsibility.
If you’re desperate and can’t postpone moving out, shop around and compare interest rates among reputable lenders before applying for a personal loan. Determine how much you need to live on, and only borrow what you can afford to pay back to avoid late payments and a damaged credit score.
- Am I able to repay the personal loan in a timely manner?
- Am I financially and mentally ready for the responsibility of renting an apartment?
- Am I already in significant debt?
- Can I afford to furnish the place, and can I afford unexpected costs?
- Pay your rent with a credit card. If you have a credit card with a 0% introductory rate, use this credit card to cover rent until your financial outlook improves. This option is only suggested for those who have landlords that accept credit card payments. Introductory rates are temporary, so pay back the card as soon as possible.