Housing is a significant cost each month, and for many, it’s a problem. U.S. Census Bureau data shows that in 2023, half of renter households spent more than 30% of their income on housing costs. If you’re struggling to cover rent this month and looking for solutions, consider taking out a loan for rent.
Can You Use a Loan for Rent?
You can apply for rent loans if you’re facing a budget shortfall. Personal loans offer maximum flexibility because you can use the proceeds for many things, including rent payments. When taking out a personal loan for rent, you have two options: secured and unsecured.
With secured personal loans, borrowers must provide collateral. Collateral is an asset that the lender can seize if you don’t repay your loan as agreed. Having this ability as a plan B makes secured loans less risky for lenders, and that means they can offer better rates and terms. Unsecured personal loans tend to have higher rates to offset the risk of not having collateral.
Jeffrey Wood, certified public accountant, certified financial planner and partner at Elysium Financial, advises being realistic and borrowing only as a temporary fix. Wood says, “I think then you have to think long-term and go, ‘But how are we going to fix the long-term problem? Am I in a place that’s just too expensive? Do I need to pick up extra shifts? Is there another member of the household that could be working?'”
[Read: Best Low-Interest Personal Loans]
Pros and Cons of Loans for Rent
Taking out a personal loan for rent can help you solve an immediate problem, but you’ll want to consider the long term. There are many loans and lenders catering to a diverse customer base. Whether you have bad, average or excellent credit, there’s probably a lender willing to work with you. Wood recommends that you plan ahead when borrowing for rent to avoid putting yourself into a deeper financial hole.
[Read: What Happens if You Default on a Personal Loan?]
How to Get a Personal Loan for Rent
If you need funding to make rent, here’s how to make it happen.
1. Evaluate your timeline. Is the first of the month approaching quickly, or are you already past due on rent? Then you need a fast loan for rent to avoid (more) late charges. If you have more time, you can look into alternatives to borrowing.
2. Research lenders. Check out three to five personal loan lenders. Review the eligibility requirements and funding timelines. Compare fixed and variable interest rates and repayment terms, making sure you can afford the payments. Don’t forget about fees. Go to the Better Business Bureau and Trustpilot web pages for each lender to see customer reviews.
3. Get prequalified. Personal loan providers typically allow you to prequalify risk-free. This lets you check your rate and eligibility before you make a formal application.
4. Apply for your personal loan. Once you’ve decided to make a formal loan application, you’ll complete a simple form and authorize a hard credit pull. You may do this in person, by phone or online. You’ll submit supporting documentation to prove your identity and income. This can include your driver’s license, pay stubs and tax forms. You may also be asked for bank statements or account information. The lender will verify your information and issue a decision. Respond quickly to any requests for more documents or explanations.
5. Receive personal loan funds. Once the lender processes and approves your application, you’ll receive your personal loan funds. Usually, they’ll be transferred to your bank account. Alternatively, you may be able to request a check or authorize the lender to disburse the funds directly to your landlord.
6. Budget for repayment. Create room in your budget for the new monthly payments without running up other balances. The goal is to decrease your debt load every month.
7. Maintain good standing. To keep your credit in shape, maintain good standing on the loan, and make payments on time.
[CALCULATE: Your Monthly Personal Loan Payment.]
Rent Assistance and Other Programs
Rental assistance and other programs exist and may be able to help you cover costs. “There are some states where you can go out and find grants or emergency assistant-type programs,” Wood says.
To find what resources are available in your community, you can call 211 or go to FindHelp.org. You can also check out resources in your state on the U.S. Department of Housing and Urban Development website.
Rental housing counselors are also available online or by phone at 800-569-4287. The Low Income Home Energy Assistance Program can provide financial assistance for utilities. You can also contact your local public housing agency to see if you qualify for housing choice vouchers, or Section 8. This program helps cover some or all rent for eligible people.
Nonprofits like the Salvation Army offer rental assistance and Catholic Charities USA helps with affordable housing.
Alternatives to Taking Out a Loan for Rent
If you don’t qualify for rent assistance programs, you may have other options. Consider these alternatives before taking out loans.
— Talk to friends and family. It’s a tough and uncomfortable conversation. But you may be able to receive support from friends and family to cover rent.
— Reach out to your landlord. Your landlord may be flexible on timing if you contact them directly and let them know your situation. Direct communication is ideal over not saying anything and skipping out on rent.
— 0% interest credit card. If you have great credit and it’s possible to pay rent via credit card, getting a 0% interest credit card can help. These cards may offer purchases and balance transfers at 0% for 12 to 21 months. The key is paying off the balance before the rate reverts back to normal after the promotional period.
— Work extra shifts. Ask your employer about taking on extra shifts or overtime to boost your earnings.
— Get a roommate. If you have extra space, get a roommate to help with costs. You can consider renting to traveling nurses if you want something shorter-term.
— Take on a side hustle. Join Rover or Meowtel to earn extra cash taking care of dogs and cats. Work catering events, take a seasonal job or freelance using your skills.
— Look into payday alternative loans. You must be a credit union member to access these.
The goal is to meet the immediate need while planning for the long term. This can help you manage cash shortages in the future without taking a loan for rent.
“One of the first exercises that we go through with individuals is a cash flow exercise,” says Andrew Flores, certified financial planner with the private wealth group at Equitable Advisors. “And so, if we’re using borrowed money to pay rent, usually everything goes back to cash flow, or lack thereof, or cash flow management.”
It’s crucial to budget for your expenses and cut back where possible. Plan your budget based on your expenses so you know where your money is going. “One of the most critical things we can do with our cash flow is assign tasks to our money. Because money doesn’t sleep, but boy does it get bored. And if we have it in our checking or our savings account, it will find something” to do, says Flores.
Additionally, it’s key to create a savings buffer to fall back on in case of emergencies. It’s tough to build up, but the most important thing is to get started. “I don’t care how much you save. I don’t care how much you put aside. The only thing I care about is that we developed a habit of paying yourself first every month,” Flores says.
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Can You Use a Personal Loan to Pay Rent? originally appeared on usnews.com
