Use a Personal Loan to Repay Debts in 2025?
In today’s time when credit cards, EMIs and loan options are easily available, everyone faces the burden of debt. But have you ever thought – “Can you use a personal loan to repay debts?” If yes, then you are not alone. Many people choose to take a personal loan to clear the balance of their existing loans or credit card.
In this blog, we will explain in detail whether this strategy is right or not, what are its pros & cons, and how it works in the Indian context.
What is a Personal Loan?
A personal loan is an unsecured loan, which means you do not have to pledge any collateral (like property, gold, or FD) to avail this loan. Banks or NBFCs (Non-Banking Financial Companies) give you this loan on the basis of your income, credit score, and repayment history. Its biggest benefit is that you can use this fund for any personal financial need, be it credit card debt repayment, wedding expenses, medical emergency, education, or even travel.
The tenure of this loan is usually 1 to 5 years, and you have to repay it every month in the form of a fixed EMI. Interest rates start from 10% and can go up to 24% – it depends on your profile and the bank.
To take a personal loan, you need basic documentation, such as:
- PAN Card, Aadhaar Card
- Salary slips (if you are salaried)
- Bank statement (last 6 months)
- Address proof
If you have a good credit score (700+), you can get quick approval, and the interest rate can also be comparatively low.
This loan is specially for those people who want to fulfil their short-term or mid-term financial needs without putting any assets at risk. But always remember: the personal loan is a responsibility — EMI delay or default can bring down your credit score.
Can You Use a Personal Loan to Repay Debts?
Yes, you can use a personal loan to repay other debts. This process is called “debt consolidation” — where you combine multiple high-interest debts into a single low-interest personal loan.
Example:
If you have 3 different credit cards with interest rates up to 36%, it may make financial sense to pay them all off through a personal loan — which has an interest rate of just 11–14%.
Benefits of Using a Personal Loan for Debt Repayment
- Lower Interest Rate
The interest rate of personal loan is usually lower than the interest rate of credit card. This reduces your total repayment. - Single EMI, Easy Tracking
The stress of multiple EMIs is over. Only one EMI has to be paid every month. - Improve Credit Score
If you repay personal loan timely, your credit score also improves. - No Collateral Required
A personal loan is unsecured, so there is no need to pledge any assets.
Drawbacks to Consider Before Taking a Personal Loan
- Processing Fees and Charges
On taking a loan, banks also charge processing fees (1%–2%) and prepayment charges. - Credit Score Impact
If you delay repayment, your credit score can get worse. - Debt Cycle Continues
If spending habits are not under control, you can again fall into the debt trap.
Is a personal loan right for every situation?
Personal loan is one such financial option which is available to you without any collateral. It can be used for many types of financial needs. But this does not mean that every time there is a need of money, you should take a loan without thinking. Use a Personal Loan to Repay Debts or for any other work is not the right decision in every situation.
If you have an outstanding credit card balance or the burden of multiple loans, then in such a case using a Personal Loan to Repay Debts can be a smart move. Since the interest rate on personal loans is usually lower than that of credit cards, you can make your monthly EMIs manageable and reduce your stress with a fixed repayment schedule.
But if you want to take a loan for non-essential things like luxury shopping, vacation or wedding celebration, it can be financially wrong. You create an unnecessary EMI burden for the future — which can also have a negative impact on your credit score.
You must ensure that when you decide to use a personal loan to repay debts, you have a stable income source, your credit score is strong, and you can repay the EMIs timely. Otherwise, in search of short-term relief you may end up in long-term financial crisis.
Tips for Using a Personal Loan Wisely
- Compare Interest Rates – Every lender has a different interest rate. Compare them.
- Take as much loan amount as is necessary – Taking too much loan can become an unnecessary burden.
- Avoid Fresh Borrowings – Until the personal loan is repaid, avoid new loans.
- Use EMI Calculators – Plan your EMI and tenure properly.
- Spend Mindfully – When you are close to becoming debt-free, work on your spending habits.
Conclusion
So, can you use a personal loan to repay debts? – You certainly can, but smartly and with proper planning. If you are disciplined and your goal is to remain debt-free, a personal loan can be a helpful tool. But without proper calculations, it can create even more burden.
Take decisions after careful consideration and start your journey of financial freedom today itself!
FAQ – Can You Use a Personal Loan to Repay Debts
Q1. Can credit card balance be cleared with a personal loan?
Yes, if you have multiple credit card bills, you can repay them all in a single EMI using a personal loan.
Q2. What is the minimum credit score required to take a personal loan?
Generally, a credit score of 700+ is required, but some NBFCs approve around 650 as well.
Q3. Does debt consolidation improve credit score?
Yes, if you repay on time, your credit score gradually improves.
Q4. What is the difference between a personal loan and a balance transfer card?
Balance transfer card is short-term (low interest for few months), while personal loan is a long-term solution.
Q5. Can students or unemployed people also take personal loan?
No, banks usually approve loan on the basis of stable income and job proof.