4 Pros and Cons of Taking Out a Personal Loan in Your 20s

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

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There are moments in life that make you realize you’re well into your 20s — like the first time you blow a lot of money on fine cheese and a nice bottle of wine at the grocery store.

Getting a personal loan is on that list, as well. Although it sounds so adult to take out a personal loan, it’s a situation you might find yourself in before you’re 30.

Before taking out a personal loan in your 20s though, consider the following.

4 pros and cons of taking out a personal loan in your 20s

Not all 20-somethings are created equal — some have better credit histories than others. If that’s the case for you, check out our guide to personal loans for 30-somethings. You’re probably ahead of the game.

If not, take a look at these four pros and cons of taking out a personal loan in your 20s.

1. Pro: You could consolidate your credit card debt

As counterintuitive as it might seem, taking on new debt could help erase your credit card debt. It’s a popular strategy because the best personal loan companies offer lower interest rates than those found on credit cards.

Say you have $15,000 in credit card debt that you’re looking to pay off and your card issuers are charging a 15.00% interest rate. If you decided to pay it off by borrowing that amount from a lender in the form of a personal loan at a 10.00% APR with a shorter term and higher monthly payment, you’d save $11,138, according to our credit card consolidation calculator.

Most importantly, you’d pay off your creditors and push your credit card balance back to zero. Although you’d still have $15,000 in debt, you’d enjoy other benefits of personal loans. For example:

  • Unlike revolving credit, personal loans are paid in installments and therefore have an end date.
  • You’d make one monthly payment to one lender instead of to multiple credit card companies.
  • You’d (ideally) pay less interest over the life of the loan.

2. Con: You might be tempted to misuse the loan

Personal loans can be used for almost any purpose, with few restrictions from lenders. Upgrade, for example, allows you to use a personal loan for most expenses, except to cover post-secondary education costs, investments, illegal activities, or gambling.

There are many ways you could use your loan amount, but not all of them are wise. Here are four types of expenses you probably should pay for in a different way.

  • Everyday bills: You might think a personal loan is a perfect solution to cover the bare necessities while you get on your feet. Instead of taking out a loan though, consider utilizing community support programs to avoid putting yourself in the situation where you’ll rack up debt for your basic needs.
  • Big purchase: Whether you’re eyeing a flat-screen TV or a four-wheel-drive car, paying for a big-ticket item with a personal loan is almost always a bad idea. That’s because you’re paying the sticker price for the item, plus the interest rate on your loan, making it a much more expensive purchase.
  • Vacation: Maybe you see a personal loan as paving the way for the dream vacation you’ve always wanted. However, you have to consider the added cost of the trip after accounting for interest. Budgeting and setting a savings goal might not be as immediately gratifying as receiving a lump sum from a lender, but it’s the better way to go.
  • Wedding: The average American is getting married in their late 20s, so you might not be too far from getting hitched. If that’s the case, consider cutting your guest list or receiving help from family members to cover costs for the big day.

3. Pro: It could help you invest in yourself

Although not all expenses should be paid for with a personal loan, there are plenty of reasonable uses for one.

For instance, at this stage in your career, perhaps you’re considering one of the following expensive life changes:

  • Relocating: Maybe you aced an interview for an out-of-state job only to find out that you’ll have to pay for your moving. Borrowing money to cover some or all of the costs could be a smart idea if you take into account whether your new salary is enough to help you repay the loan.
  • Continuing your education: You may have decided to take out student loans to pay for your undergraduate and post-graduate degrees. But you could use a personal loan to pay for a certification, class, or conference that you need to be promoted at work. Before resorting to borrowing, however, find out if you can get your employer to pay for the program or if you can work out a payment plan with the organization offering it.
  • Starting a business: If you have excellent credit, you might find that a personal loan is the cheapest way to start funding your small business. Before signing on the dotted line, however, ensure you have a repayment plan that isn’t contingent on your business success.

4. Con: It could come with high interest rates

This is the real catch of it all: To benefit from personal loans — like other installment loans — you need to have good-to-great credit, plus a satisfactory debt-to-income ratio.

Without these marks of a strong personal loan application, you could be quoted interest rates as high as 35.00% — and that’s from reputable lenders.

There are plenty of predatory lenders offering personal loans at much higher rates with similarly short repayment terms. That makes the loans risky to borrow and difficult to repay.

If you’re considering borrowing before your 30th birthday, put yourself in the best possible position by improving your credit score and prequalifying for a personal loan. Then, and only then, can you enjoy the advantages of a personal loan.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 6.58% APR to 14.87% APR (with AutoPay). Variable rates from 6.275% APR to 12.575% APR (with AutoPay). SoFi rate ranges are current as of July 16, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.275% APR assumes current 1-month LIBOR rate of 2.10% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.73% – 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
6.28% – 14.87%1$5,000 - $100,000
Check rate nowon SLH's secure site
6.87% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% – 29.99%$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%2$5,000 - $50,000Visit Citizens
15.49% – 34.49%$2,000 - $25,000Visit LendingPoint
5.99% – 35.89%$1,000 - $40,000Visit LendingClub
5.49% – 18.24%$5,000 - $75,000Visit Earnest
9.95% – 35.99%$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.