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When it comes to paying for large expenses like a costly home repair or a funeral, it can be tough to come up with all the money you’ll need to cover the bill — especially if your emergency fund can only get you so far. That’s where personal loans can come in. The money you borrow gets repaid to the lender in smaller, fixed monthly installments (with interest, of course). So instead of trying to slowly scrape together tens of thousands of dollars for a home repair you need right away, for example, you can apply for a personal loan to get the money fast then pay it back over time in small, less intimidating installments.
You can generally use a personal loan for almost anything, including a wedding, a vacation, a medical bill, an emergency circumstance and more. However, there are also some expenses a personal loan usually can’t be used to cover. It’s better to make sure you aren’t breaching any loan terms; using a loan for prohibited purposes could result in the lender forcing you to repay the full amount plus interest immediately.
Aside from gambling and illegal activities, here are some other things you generally can’t use a personal loan to pay for.
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Paying college tuition
Some personal loans can be used for educational purposes, but many cannot. It really comes down to which lenders follow the federal regulations around loans for educational use.
Under the 2008 Higher Education Opportunity Act, lenders providing private education loans must make special disclosures, provide a 30-day rumination period, must give borrowers the option to cancel within three days of disbursing the funds and cannot affiliate themselves with schools. These are just some of the regulations that loans for educational use must follow.
Not all lenders offer personal loans that meet all of these requirements. Since they don’t follow these strict regulations, many lenders actually prohibit the use of their personal loans for tuition-related expenses.
Before you apply for a personal loan to pay college tuition, double check with the lender to see if this is prohibited. Also, make sure you exhaust your options for funding your education through federal student loans first.
Federal student loans typically carry a lower interest rate compared to most personal loans — especially …….