Should You Take Out a Personal Loan to Pay Your Rent?

Life is expensive and paying for rent can take up a significant chunk of your paycheck. In an ideal world, 30 percent of your income should go towards rent and housing costs. But life happens and you may come up short on rent due to loss of income or other unexpected expenses, leaving you wondering if you should take out a loan to pay rent. Coming up short on your rent payment is an extremely stressful situation and you'll be looking for ways to make your rental payment and avoid eviction.

If you find yourself in this situation, what do you do? There are several options to weigh and taking out a loan to pay rent is one of them. Let's walk through the pros and cons of rent loans and discuss several options you can consider if you're behind on rent payments.

Is it possible to take out a loan to pay for rent?

If you get behind on rent payments, you're not alone. In fact, more than 7 million renter-occupied households are behind on just last month's rent alone. So, what are your options and is it possible to take out a loan to pay for 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.

Loan agreement.

Pros of using a personal loan for rent

If you're strapped for cash and need to pay for rent, there are some plus sides to taking out a personal loan for rent.

Pro #1: Provides a window of time for re-assessing your finances

By taking out a personal loan to cover your rent, you buy yourself some time to get your budget back on track. With a personal loan, you can pay for rent (either what you owe from missed payments or for future rent payments). Once you pay your rent, you'll find yourself less stressed and you'll think more clearly so you can get your budget back in a place where you can pay your loan back and have enough money for future rent payments.

Pro #2: Gives you flexibility

Personal loans allow you to use the loan money for anything you need. So, taking out a personal loan gives you the flexibility to use the money for rent or any other expense you need to cover. This flexibility is enticing for renters who need some financial help as the loan doesn't specify what you can and cannot use the money for.

Budgeting.

Pro #3: You can shop loan ranges and rates

Before taking out a personal loan, you'll be able to shop around for loan ranges and rates. Make sure to compare your findings before you make a decision. You can take out a loan for as little as $1,000 or as much as $60,000 if needed. You can also compare interest rates.

It is important to try and find a loan with a low interest rate so you don't accrue more debt than is absolutely necessary.

Pro #4: Can build a credit score

This is both a pro and con of personal loans, depending on how diligent you are with repayment. If you make your loan repayments in full and on time every single time, you'll pay the loan off within the limits and build your credit score. If your credit score took a hit or is low, this is one way to rebuild your credit history.

However, it's essential that you meet the terms of the loan for this to benefit you.

Cons of using a personal loan for rent

As with everything, when there are pros there are cons. Before taking out a loan to pay rent, consider the negative impacts of rent loans.

Con #1: You'll pay interest

With any type of loan, you'll pay interest on the amount you borrow. So, if you take out a personal loan toward rent, not only will you pay the rent money, you'll also be paying money toward the interest.

If you have no other options, then taking out a loan for rent allows you to make your payment, stay in your apartment and come up with a new financial plan. Keep in mind that you'll pay more with this option because of interest.

Con #2: Adds to debt

When you take out a personal loan to pay rent, you're adding to the overall amount of debt you have. This may compound your stress and overall debt, causing more problems down the road. Also, when you rent, you aren't putting money toward eventually owning an asset as with a mortgage toward a house. So, you're compiling debt without working toward an eventual purchase.

Credit score.

Con #3: Could harm your credit score

If you fail to make your monthly loan payment, you could seriously damage your credit score putting you at risk for further financial hardship.

How to find a personal loan to pay back your rent?

If you've come to the conclusion that a personal loan is right for you, then you'll need to know where to look and find one. Most financial institutions will offer loans and you can shop around for the loan that is right for you. Here are some places you can go to find a personal loan to pay back your rent:

  • Bank
  • Credit union
  • Online banks
  • Loan comparison websites

Because different places offer different rates on your loan, it's smart to get several recommendations before taking out a loan.

Other options to pay back your rent

Unsure that a personal loan is right for you? We also have provided several other options to consider when you need money to pay back your rent. Before taking out a loan, you could consider:

1. Talking to your landlord

When you first realize that you may not have the money to pay your rent or if you've missed the due date, you'll want to talk to your landlord immediately. Getting in front of the issue and addressing it openly is always a wise move.

Ask your landlord if he/she is willing to defer rent, offer a payment plan or waive late fees. You never know unless you ask!

2. Borrowing from a friend or family member

Do you have a trusted friend or family member that could loan you money for rent payback? If so, this is a less expensive option compared to getting a personal loan. Sometimes, close family or friends will loan you the money, interest-free, which is always a better option.

3. Call 211

You can the 211 community phone line to get referrals for services, like financial resources. If you're in a bind, try calling this number and get in touch with local resources that can help with rent relief.

Roommates sitting on a couch.

4. Consider a roommate

Imagine your rent payment being cut in half. Would that free up some of your budget? The answer is most likely yes. If you have space, you may consider getting a roommate who can share the cost of rental expenses and save you money, too.

5. Get a side gig

Nowadays, there are several side hustles that you can do from home, after work or at your convenience that pays well and would help your income. If you can get a side hustle that'll cover the additional money you need for rent, this is a great option because it puts you in control of your money and you don't need a loan to cover the extra expense of rent paybacks.

6. Reallocate your budget

Sometimes, we spend money on things like coffee, eating out or shopping and don't realize how much of our budget it's taking up.

Before you take out a personal loan, take a hard look at your expenses and budget to see where you can trim the fat. If there are areas to cut back on and reallocate expenses to rent payback, do this before taking out a personal loan.

Know your financial options

Now that you understand the pros and cons of loans to pay rent, you can make an informed decision if this is right for you. As always, you may want to consult a financial advisor before making a big decision like this to get professional guidance on what is best for you and your situation.

The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.
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Sage SingletonSage Singleton is a freelance writer with a passion for literature and words. She enjoys writing articles that will inspire, educate and influence readers. She loves that words have the power to create change and make a positive impact in the world. Some of her work has been featured on LendingTree, Venture Beat, Architectural Digest, Porch.com and Homes.com. In her free time, she loves traveling, reading and learning French.

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Consider the pros and cons of taking out a personal loan to pay back rent.