Loans for utility bills: Guide to your options

When your finances are tight, even recurring expenses like utility bills can become overwhelming—especially during extreme weather conditions when heating or cooling costs skyrocket. If you're struggling to cover your electricity, water, gas, or internet bills, a loan may be a lifeline through a challenging time. 

This guide will explore loans for utility bills, along with alternatives that may better suit your financial situation.

Loans for utility bills

Personal loans

A personal loan can be used for almost any expense, including utility bills. The approval process and funding typically happen in just a few business days, which is ideal for borrowers in urgent situations. Rates and terms are based on your credit score, income, and how much debt you carry (debt-to-income ratio). 

• Repayment: You'll be responsible for fixed interest rates and predictable monthly payments over a 1 to 7-year term.
• Considerations: Interest rates can be high, especially for borrowers with bad credit.

You can find loans to pay utility bills through banks, credit unions, and online lenders. Popular online lenders include Moneylion, Avant, and LendingPoint.

Payday alternative loans (PALs)

Payday alternative loans (PALs) are a safer and cheaper option than traditional payday loans. This type of financing is offered and regulated by credit unions, eliminating exorbitant interest rates and short repayment periods.

• Repayment: Borrowers make fixed monthly payments over a 1 to 12-month term.
• Considerations: PALs are reserved for credit union members, so you may need to join first. Additionally, the loans are only available in small amounts, $200 to $2,000. 

401(K) loans

A 401(k) loan allows you to borrow against your retirement savings and repay the loan over time, usually with interest paid back into your own account. Eligibility is not based on creditworthiness but rather on having an eligible retirement plan.

• Repayment: You'll pay back the loan and interest through standard payroll deductions over a 5-year term.
• Considerations: Failing to catch up on contributions could result in a serious retirement shortfall, so it's best to consult a financial advisor before tapping your nest egg. 

Home equity loans

If you own a home and are sitting with sufficient equity, a home equity loan can help you manage utility bills or other high expenses. The loan allows you to borrow against your equity for a lump sum payout, usually at a lower interest rate than unsecured loans.

In addition to sufficient equity, you typically need good credit and stable income to qualify.

• Repayment: You'll have fixed monthly installments over a 5 to 30-year term, which can help support lower monthly payments.
• Considerations: Your home is collateral, so missed payments could result in foreclosure.

Home equity lines of credit (HELOCs)

Unlike a home equity loan, a HELOC works as a revolving credit line you can draw from as needed. The draw period allows you to manage expenses as they arise and only pay interest on what you've used. Interest rates tend to be the most competitive on the market.

You'll need 15% to 20% equity, a credit score of at least 620, and sufficient income to qualify.

• Repayment: You'll be on the hook for interest-only payments during the 10-year draw period, then principal-plus-interest payments once the 20-year repayment period begins.
• Considerations: Your home is used as collateral, putting it at risk if payments are missed. 

Alternatives

If a traditional loan will put you under further financial strain, it's worth exploring alternative ways to manage your utility bills.

Home equity investments

A home equity investment (HEI) allows you to tap into your home equity without taking on debt or monthly payments. Instead, you get a single lump sum payout in exchange for a share of your home's future appreciation. Homeowners can repay the investment any time during a flexible 30-year term when they refinance, sell the property, or use another source of funds.

You can qualify with sufficient equity and a credit score above 500—there are no income requirements.

• Repayment: There are no monthly payments over a 30-year term. Instead, repay a share of your home's appreciation when you're ready to exit the partnership or when the term ends.
• Considerations: Like other home equity products, you risk foreclosure should you default. Additionally, HEIs are only in select states.  

Government assistance programs

Various federal, state, and local programs are designed to help low-income households manage essential utility costs—best of all, there’s no repayment obligation. 

Some notable programs include:

• Low-Income Home Energy Assistance Program (LIHEAP): Helps cover heating and cooling expenses.
• Weatherization Assistance Program (WAP): Provides energy-efficient home improvements to lower utility costs.
• Emergency Rental Assistance Programs (ERAP): Some programs cover overdue utility bills for renters.
• Utility Company Assistance Programs: Many utility providers offer payment plans, discounts, or emergency relief funds.

Final thoughts

While a loan for utility bills can offer some relief, it's best to explore all your options. Consider your financial situation and ability to repay a debt before moving forward. 

Take control of your finances with a Home Equity Investment from Point. Prequalify with no impact on your credit at Point.com.