When you’re in a pinch and need money for unexpected expenses, taking on another personal loan can feel like your only option. Loans can be handy financial tools to cover expenses that you can’t pay out of pocket. And yes, you can have more than one personal loan at a time.
But taking on multiple loans comes with risks.
Your financial situation will ultimately determine what the right path is for you. Before you take out another loan, consider the risks and look into alternative solutions.
How many personal loans can you have at one time?
There’s no strict limit on the number of personal loans you can have. However, the number you can take out depends on factors like your creditworthiness, your debt-to-income ratio and your lender’s policies.
If you’re already carrying debt, it may be harder to get approved for another loan. A lender’s decision will be influenced by whether or not they think you can effectively manage and repay another loan.
Can I get two loans from the same lender?
It’s possible to get a second personal loan from the same lender, but it will ultimately depend on the lender’s policies and your personal finances. Lenders may have restrictions on the number of loans or the overall amount you can borrow. You can usually find this information on their website or by calling customer service.
Keep in mind that you will still have to submit a new loan application and get approved, even if you’re using a lender you already have a loan with.
Some lenders offer their qualified customers the option to refinance an existing loan. This is essentially like taking out another loan — customers borrow more money and extend the length of their repayment schedule.
What do I need to qualify for another personal loan?
It may be more difficult to qualify for an additional personal loan while you’re still repaying an existing loan. You may also receive less favorable loan terms like higher interest rates. Here are some of the factors that lender’s consider.
Your debt-to-income ratio. Your debt-to-income ratio (or DTI) is the percentage of your monthly income that goes toward paying debts. To calculate your DTI, add up all your monthly debt payments (including credit card bills, car loans, additional personal loans, etc.) and divide by the amount of money you bring home every month. Lenders tend to prefer a lower DTI, as this indicates you still have room in your budget to manage taking on another loan.
Your credit score. Traditional lenders like banks and credit unions will often do a hard credit check versus a soft one when determining approval and loan terms. Many will look at your credit report and FICO score, which is impacted by several factors like your repayment history, how much debt you have, the type of debt you have and how long you’ve had your accounts. Your credit report can be checked for free every 12 months at www.annualcreditreport.com.
There are different lenders who may offer “no-credit-check loans.” Keep in mind that these types of loans, whether they’re online loans or in person, often come with higher interest rates and less favorable loan terms. This can put additional strain on your budget, but if you don’t have a good credit history they could be an option in an emergency.
Are there risks to taking out multiple personal loans?
Yes, there are risks you should consider before you take out multiple personal loans. Here are a few examples.
It puts you into more debt. This may sound obvious, but every loan you take on has its own weekly, bi-weekly or monthly payment. The more debt you have, the more you’re spending on making those payments. This leaves less money to put into your savings account, and if you’re not able to save, you may find yourself borrowing more money the next time an emergency arises.
It can impact your credit score. Your FICO score is impacted by the amount of debt you carry. Not only will taking on a new loan increase your debt-to-income ratio, but if the lender runs a hard inquiry to determine approval it can ding your score by a few points.
A new loan payment can also be hard to fit into your budget. Your payment history is one of the biggest factors that determines your credit history. On-time payments can help your score, but missed or late payments can have a big negative impact on your score. Even if your lender doesn’t report to the major credit bureaus, if you fail to repay the debt it could end up in collections. This can also negatively affect your credit.
You may receive worse loan offers. You may not be able to get the same loan options as you got with your first loan. It’s possible you’ll see higher interest rates and lower loan amounts offered to you because you’re already carrying debt.
Alternatives to taking out another personal loan
If you need to borrow money, there are other options that could be a better fit for your situation. Here are some you can consider.
Line of credit. A personal line of credit is similar to a credit card in a sense that they’re both forms of revolving credit, but a line of credit allows you to make a draw which puts cash directly into your account. With a line of credit you can avoid applying for multiple loans because you can simply draw the funds you need as long as you haven’t reached your credit limit.
Credit card. If you’re looking into debt consolidation, a 0% APR credit card may be an option. Some credit card providers offer cards that won’t charge you interest for a set period of time. By using this type of card to pay off other debts, you can simplify your monthly debt payments into one payment and save on interest if you’re able to pay off the credit card debt before the interest charges kick in.
Payment plans. If you’re looking to take out a personal loan to cover bills, you could try to work out a payment plan with the company you owe instead. Utility providers, medical professionals and other organizations may be willing to work with you to find a payment solution that works for both of you.
Friends and family. You don’t have to use a lender to get a loan. If you have friends or family that can help, consider asking them for a small loan. If you have bad credit, this can be a good option as your family is less likely to charge you interest on the money you borrow. If you do end up borrowing from friends or family, be sure to discuss when and how you’ll repay them.
Save. Saving money is easier than you think. Try paying yourself first. When you get paid, put a portion of your income into a savings account before anything else. You should aim to put away around 10%, but that’s not always possible. You can start small, even putting away five dollars a month can help. Building an emergency fund can help you avoid taking out multiple personal loans in the future and putting your financial health at risk.
Home equity loan or line of credit. A home equity loan or a home equity line of credit (HELOC) can be an alternative to a personal loan, but it does require you to have equity in your home. Equity is simply the amount of money your home is worth minus the amount you still owe. Whatever is left over is the amount of equity you have. You can borrow against this amount and repay it over time. Some people use these types of loans for home renovations or repairs. Be aware that if you fail to repay this type of loan, your home can be foreclosed on.
DISCLAIMER: This content is for educational and informational purposes only, and is not intended as financial, investment, or legal advice. You should conduct your own research and seek the advice of a licensed financial advisor who can address the specifics of your situation.
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