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7 Smart Ways to Use Personal Loans That Actually Make Money in 2025
Most people view loans as necessary evils that drain finances over time. However, when used strategically, personal loans can become powerful financial tools that generate returns exceeding their costs.
What can you use a personal loan for that creates wealth rather than debt? The options are surprisingly diverse. From consolidating high-interest debt to funding home improvements that increase property value, smart borrowers are leveraging personal loans to strengthen their financial positions.
This guide explores seven proven strategies where personal loans can potentially put more money in your pocket than they take out. Whether you're considering business expansion, career advancement, or escaping predatory lending cycles, these approaches transform traditional borrowing into genuine wealth-building opportunities.
Consolidating High-Interest Debt
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Struggling with multiple high-interest debts? Converting those balances into a single personal loan could be your ticket to financial freedom. Let's explore this money-making strategy.
What is consolidating high-interest debt
Debt consolidation involves combining multiple debts (typically credit cards, medical bills, or other high-interest loans) into one new loan with a single monthly payment. This financial strategy simplifies your repayment plan while potentially reducing interest costs.
The process works by taking out a personal loan and using those funds to pay off your existing debts. Once approved for the new loan, you'll make one fixed payment each month instead of juggling multiple due dates and varying interest rates. Currently, 44% of Americans report having more debt than they're comfortable managing [1].
How consolidating high-interest debt saves money
The primary financial benefit comes from interest rate differentials. As of September 2025, credit cards carry an average APR of 20.12%, while personal loans average just 12.39% [2]. This significant gap creates substantial savings opportunities.
Consider this example: If you had $10,000 in credit card debt at 22% APR and paid it off over three years, you'd pay approximately $3,748 in interest alone. By consolidating with a personal loan at 13% APR, your interest costs would drop to about $2,130—saving nearly $1,618 [2].
Furthermore, consolidation can provide:
- Simplified finances with one payment instead of multiple
- Fixed interest rates unlike variable credit card APRs
- Structured repayment schedules with defined end dates
- Potential credit score improvements through reduced utilization
An impressive 85% of surveyed customers reported saving money by consolidating debt with a personal loan, with nearly half saving an average of $428 monthly [3].
Best practices for using a personal loan for consolidating high-interest debt
First, calculate your total debt amount precisely before applying. This ensures you request the appropriate loan amount without borrowing more than needed.
Second, compare interest rates carefully—consolidation only makes financial sense if your new rate is lower than your existing debts' average rate.
Third, look beyond the monthly payment. A longer loan term might reduce monthly payments but could increase total interest paid over time.
Fourth, once approved, resist the temptation to accumulate new debt on your freshly paid-off credit cards. Many people fall into this trap, creating a worse financial situation [1].
Finally, consider setting up automatic payments. This prevents missed payments that could damage your credit score while possibly qualifying you for rate discounts offered by some lenders [1].
Most importantly, 88% of surveyed debt consolidation customers expect to pay off existing debt sooner with a personal loan [4], demonstrating this strategy's effectiveness in accelerating financial freedom.
Investing in Home Improvements
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Looking to transform your living space and build equity simultaneously? Home improvement projects funded by personal loans can be a strategic way to boost your property's value beyond the cost of borrowing.
What is investing in home improvements
Investing in home improvements means funding renovations that increase your property's market value or functionality. The average home improvement project costs approximately $5,600, according to 2025 data collected across 20 metropolitan areas [5]. Unlike spending on depreciating assets, strategic home upgrades can generate positive returns through increased home equity.
Personal loans for home improvements provide a lump sum of funds without requiring collateral or home equity [5]. These loans offer quick funding with fixed monthly payments, making them accessible even for newer homeowners who haven't built substantial equity yet [5].
How home improvements increase property value
Not all renovations yield equal returns. Notably, exterior projects deliver the highest ROI, with garage door replacements offering an astounding 194% return and steel front door upgrades providing 188% ROI [6].
Additionally, minor kitchen remodels recoup approximately 96% of costs [6], making them substantially better investments than major upscale kitchen overhauls which return only about 38% [6].
Fresh interior paint can provide an exceptional 107% ROI, among the few improvements exceeding their costs [7]. Meanwhile, manufactured stone veneer, bathroom renovations, and energy efficiency upgrades typically deliver strong returns as well.
According to Harvard researchers, Americans' total spending on home remodeling projects could reach $509 billion in 2025 [8], demonstrating the widespread recognition of renovation as an investment strategy.
Best practices for using a personal loan for home improvements
First, focus on projects with proven returns. Exterior improvements and minor kitchen updates generally outperform major luxury renovations in terms of ROI [6].
Second, calculate your total project costs precisely before applying for the loan to avoid borrowing more than necessary [9]. Consider consulting with local real estate professionals about which specific improvements add the most value in your market [10].
Third, compare financing options thoroughly. Personal loans typically charge higher interest rates than home equity products yet offer faster funding and don't put your home at risk [11]. For amounts up to $25,000-$50,000, personal loans can be an excellent choice [12].
Fourth, set up automatic payments to potentially qualify for interest rate discounts from certain lenders [9], further enhancing your renovation's profitability.
Starting or Expanding a Small Business
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Starting or Expanding a Small Business
Dreaming of launching your own venture? Personal loans can provide the capital needed to turn your business idea into reality.
What is using a personal loan for small business
A personal loan for business purposes is borrowed money that can fund startup costs, equipment purchases, inventory, or operational expenses. Although business-specific loans exist, many entrepreneurs opt for personal loans since they evaluate your individual creditworthiness instead of business metrics. This makes them particularly valuable for startups without established revenue or business history [13].
Personal loans typically offer unsecured funding up to $100,000 [14], faster approval processes, and less documentation compared to traditional business loans [15]. Since they're based on your personal credit rather than business performance, you don't need to submit business plans or revenue projections [15].
How small business loans can generate income
Capital from personal loans enables businesses to create revenue-generating opportunities through:
- Purchasing inventory or materials to fulfill large orders [4]
- Acquiring equipment that increases productivity [4]
- Expanding operations to accommodate growth [16]
- Investing in marketing to attract new customers [14]
- Implementing automation systems that reduce costs [16]
The key to profitability lies in ensuring the return on investment exceeds borrowing costs. Therefore, always calculate whether the business opportunity will generate sufficient cash flow to comfortably cover loan payments plus interest [15].
Best practices for using a personal loan for business
First, verify your lender allows business use—not all personal loans permit funding business activities [14]. Some explicitly prohibit it, potentially resulting in immediate repayment demands [14].
Second, thoroughly analyze costs versus potential returns. Create a detailed business plan showing how loan proceeds will generate profit exceeding interest expenses [15].
Third, compare options—personal loans typically carry higher interest rates (averaging 12.58%) than business loans (averaging 7.33%-7.99%) [17]. Nevertheless, they often offer faster funding, sometimes within 1-2 days of approval [17].
Lastly, remember personal loans impact your individual credit score. Late payments could affect your ability to secure personal financing like mortgages or auto loans in the future [14].
Paying for Career-Boosting Education
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Paying for Career-Boosting Education
Investing in your skills and knowledge can yield exceptional returns. Personal loans offer a strategic way to fund education that boosts your career trajectory and earning potential.
What is career-boosting education
Career-boosting education encompasses professional certifications, specialized training, or degree programs that enhance your marketability and skills. This includes industry-recognized certifications that verify your expertise in specific fields like computer networking or supply chain management [18].
Unlike recreational learning, career-boosting education directly impacts your professional opportunities and earning capacity. Many certifications require passing standardized exams and meeting specific professional criteria, subsequently becoming industry standards for advancement [18].
In today's job market, continuous upskilling is essential—58% of employees need new skills to perform effectively in their current positions [19].
How education increases earning potential
The financial impact of education is substantial. Men with bachelor's degrees earn approximately $900,000 more in median lifetime earnings than high school graduates, while women with bachelor's degrees earn $630,000 more [3].
Even more impressive, men with graduate degrees earn $1.5 million more than high school graduates over their lifetime, and women with graduate degrees earn $1.1 million more [3].
Education also provides employment security. As of recent data, unemployment rates directly correlate with education level [20]:
- Doctoral degree: 1.5%
- Bachelor's degree: 2.5%
- High school diploma: 4.6%
- Less than high school: 6.5%
In current dollars, bachelor's degree holders aged 25-34 earn median weekly earnings of $1,173—65% higher than those with only high school diplomas ($712) [20].
Best practices for using a personal loan for education
First, evaluate whether your chosen program truly offers strong return on investment. Programs with industry demand yield better financial outcomes [19].
Second, borrow only what you need for tuition and essential expenses—never subsidize an expensive lifestyle with loan funds [21].
Third, research thoroughly, as some lenders prohibit using personal loans specifically for tuition costs due to regulatory requirements [22].
Fourth, consider alternatives before committing. Ask your employer about tuition assistance programs, which 92% of companies now offer for MBA graduates [19].
Lastly, compare personal loans with student-specific loans. Student loans typically offer lower interest rates and deferred payments while you're in school, whereas personal loans require immediate repayment [22].
Above all, remember that education financing should be treated as an investment with measurable returns—91% of participants in certain professional certificate programs reported positive career impact [19].
Buying Equipment for a Side Hustle
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Buying Equipment for a Side Hustle
Ready to turn your hobby into a profitable side gig? Equipment purchases often represent the first major hurdle—yet with a personal loan, these initial costs can quickly transform into income-generating assets.
What is using a personal loan for side hustle equipment
Financing side hustle equipment involves borrowing money specifically to purchase tools, technology, or machinery needed to start or expand your part-time business. Indeed, more than 50% of people now maintain some form of side gig to generate additional income [23]. Personal loans provide upfront capital for essential equipment, allowing you to keep your savings intact while investing in your venture [1].
Unlike high-interest credit cards with unpredictable payments, personal loans offer fixed monthly installments and clear repayment schedules [1]. Most lenders offer amounts ranging from $250 to $15,000 with flexible terms between 6 and 48 months [24].
How side hustles can generate extra income
Properly equipped side hustles create income streams through service delivery or product creation. Initial investment varies considerably by business type:
- Freelance work: $0–$500 (laptop, software subscriptions)
- eCommerce reselling: $500–$2,000 (inventory, website)
- Ride-sharing: $1,000+ (vehicle maintenance, insurance)
- Home cleaning services: $200–$1,000 (supplies, equipment)
- Real estate agent: $1,000–$2,500 (licensing, fees) [25]
Successful side hustlers invest in productivity tools that maximize efficiency. Essentials often include 4K cameras for content creation, wireless charging stations for workspace organization, and digital tools for business management [26].
Best practices for using a personal loan for side hustle tools
First, create a detailed budget outlining exactly what equipment your side hustle truly needs [1]. Consequently, you'll avoid borrowing more than necessary.
Second, research whether your chosen equipment genuinely drives income generation. Unless the tools directly contribute to revenue, reconsider the purchase.
Third, match loan terms to expected equipment lifespan—avoiding situations where you're still paying for outdated technology.
Fourth, consider starting with minimal viable equipment, expanding only as revenue grows.
Ultimately, successful equipment financing requires calculating whether projected earnings will comfortably exceed loan payments plus interest [1]. This ensures your side hustle truly generates profit rather than becoming another financial burden.
Avoiding Payday Loan Traps
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Avoiding Payday Loan Traps
Trapped in a financial emergency? Payday loans might seem like a quick fix, yet they often create more problems than they solve.
What is avoiding payday loans
Avoiding payday loans means steering clear of short-term, high-interest cash advances designed to be repaid by your next paycheck. These loans typically don't require credit checks but come with exorbitant fees [27]. In reality, most borrowers struggle to repay on time, forcing them to roll over the loan and accumulate additional fees [2].
How avoiding payday loans saves money
The financial impact of avoiding payday loans is substantial. Payday lenders charge interest rates averaging 400% and sometimes reaching 780% [27]. Because of these astronomical rates, 80% of payday loans are renewed multiple times, with most borrowers ultimately paying more in fees than they initially borrowed [2].
Furthermore, single-payment payday loans often lead to a continuous sequence of debt [27]. Many borrowers pay approximately $574 in fees over just one year [28].
Best practices for using a personal loan instead of payday loans
Initially, compare rates—personal loans typically charge between 12-36% APR versus payday loans' 400%+ [29]. Moreover, personal loans offer structured repayment over months or years rather than weeks [30].
Unlike payday loans, personal loans report positive payment history to credit bureaus, helping build your credit score [31]. Even with bad credit, personal loans remain more affordable than payday options [32].
Undoubtedly, as financial expert Stefanie O'Connell Rodriguez states, payday loans should be "an option of last resort, like truly avoid it at all costs" [29].
Refinancing High-Interest Installment Loans
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Refinancing High-Interest Installment Loans
Interest rates fluctuate over time, making refinancing an existing loan with a personal loan potentially profitable.
What is refinancing installment loans
Refinancing means replacing your current loan with a new one that offers improved terms [33]. During this process, the funds from your new loan pay off your existing debt, essentially giving you a fresh start with better conditions. Borrowers often refinance to lower fixed interest rates, change loan duration, or switch between fixed-rate and adjustable-rate options [5].
How refinancing saves on interest
The savings from refinancing can be substantial. For example, refinancing a $20,000 loan from 23% APR to 14% APR while keeping the same 60-month term would reduce monthly payments by $99 and save approximately $5,907 in total interest [33].
Borrowers with improved credit scores typically qualify for significantly better rates. Personal loans now range from 5.99% for excellent credit to nearly 36% for bad credit [34]. As your score improves from bad to good, your rate could drop by almost 10 percentage points [34].
Best practices for using a personal loan to refinance
First, verify your credit score has improved enough to qualify for better rates.
Second, calculate all costs—origination fees typically range from 1-8% [35].
Third, compare at least three different lenders, including credit unions, banks, and online options [34].
Lastly, use prequalification options to avoid damaging your credit while shopping for rates [34].
Conclusion
Personal loans represent powerful financial tools when applied strategically rather than merely viewed as debt. Throughout this guide, we've explored seven proven approaches that transform borrowing into wealth-building opportunities. Debt consolidation stands out as perhaps the most immediate way to save money, with 85% of customers reporting financial benefits and many saving hundreds monthly.
Home improvement projects funded through personal loans can actually pay for themselves through increased property values, especially when focusing on high-ROI renovations like exterior upgrades and minor kitchen remodels. Similarly, small business funding enables entrepreneurs to generate revenue streams that significantly exceed loan costs when invested in inventory, equipment, or marketing.
Education financing through personal loans also demonstrates remarkable return potential. Bachelor's degree holders earn substantially more over their lifetimes compared to those with only high school diplomas, making educational investments particularly worthwhile despite upfront costs.
Side hustles, now maintained by over half of Americans, often require initial equipment purchases that personal loans can facilitate, creating ongoing income sources with relatively modest investments. Additionally, personal loans offer escape routes from predatory payday lending cycles, where interest rates often reach 400% or higher, trapping borrowers in expensive debt spirals.
Finally, refinancing existing high-interest loans presents another clear opportunity for savings, potentially reducing both monthly payments and total interest paid over the loan term.
The key message remains consistent across all seven strategies: personal loans work best when the financial benefits outweigh the borrowing costs. Smart borrowers calculate potential returns before applying, borrow only what they truly need, and compare multiple lenders to secure optimal terms.
Personal loans certainly carry costs, yet these seven approaches demonstrate how strategic borrowing can actually strengthen your financial position rather than weaken it. The difference lies not in the loan itself but in how you use it.
References
[1] - https://www.academybank.com/article/why-finance-your-side-hustle-with-a-personal-loan
[2] - https://www.earnest.com/blog/payday-loans-vs-personal-loans
[3] - https://www.ssa.gov/policy/docs/research-summaries/education-earnings.html
[4] - https://www.bankofamerica.com/smallbusiness/business-financing/
[5] - https://www.investopedia.com/terms/r/refinance.asp
[6] - https://www.cnbc.com/2024/05/20/home-remodeling-projects-that-boost-curb-appeal-pay-off-the-most.html
[7] - https://www.firstcitizensbank.com/services-tools/tools/education-center/detail.html?cId=58684&title=6-home-improvements-with-the-best-roi
[8] - https://www.homelight.com/blog/what-upgrades-increase-home-value/
[9] - https://www.td.com/us/en/personal-banking/personal-loan/personal-loan-for-home-improvement
[10] - https://www.fbfs.com/learning-center/home-renovations-that-actually-add-value
[11] - https://www.wellsfargo.com/personal-loans/home-improvement/
[12] - https://www.usbank.com/loans-credit-lines/personal-loans-and-lines-of-credit/home-improvement-personal-loan.html
[13] - https://point.com/blog/personal-loan-to-start-a-business
[14] - https://www.cnbc.com/select/should-you-take-out-personal-loan-to-start-small-business/
[15] - https://www.americancapitalexpress.com/blog/can-i-use-a-personal-loan-to-start-a-business-what-you-should-know
[16] - https://www.jpmorgan.com/insights/banking/commercial-loans-and-lines-of-credit/using-business-loans-to-drive-growth
[17] - https://www.bankrate.com/loans/small-business/can-businesses-use-personal-loans/
[18] - https://www.indeed.com/career-advice/career-development/certifications-in-demand
[19] - https://online.hbs.edu/blog/post/professional-development-opportunities
[20] - https://www.bls.gov/careeroutlook/2018/data-on-display/education-pays.htm
[21] - https://extension.harvard.edu/blog/10-tips-for-responsibly-borrowing-via-student-loans/
[22] - https://www.cnbc.com/select/why-you-cant-use-some-personal-loans-pay-college-tuition/
[23] - https://www.thebudgetdiet.com/what-equipment-can-i-buy-to-make-money
[24] - https://www.afbank.com/article/start-a-side-hustle-with-a-personal-loan-for-military-families
[25] - https://www.llcattorney.com/small-business-blog/side-hustle-ideas
[26] - https://teachable.com/blog/10-tools-every-side-hustler-should-use
[27] - https://www.investopedia.com/payday-loans-vs-personal-loans-5214282
[28] - https://www.greenpath.com/blog/payday-loan-cycle/
[29] - https://www.businessinsider.com/personal-finance/personal-loans/payday-loans-vs-personal-loans
[30] - https://www.discover.com/personal-loans/resources/learn-about-personal-loans/personal-loans-vs-payday-loans/
[31] - https://mycreditunion.gov/manage-your-money/consumer-loans-credit-cards/payday-alternative-loans
[32] - https://www.cnbc.com/select/best-payday-loan-alternatives/
[33] - https://www.lendingtree.com/personal/how-to-refinance-a-personal-loan/
[34] - https://www.bankrate.com/loans/personal-loans/refinance-personal-loan/
[35] - https://www.experian.com/blogs/ask-experian/when-and-how-to-refinance-a-personal-loan/
