A personal loan can feel like a lifesaver. Of course, we’d all prefer to have enough savings in the bank to cover a major expense—like a home renovation, a wedding, or unexpected medical bills—but reality can be so much more complicated.
It’s not always possible to cut costs or increase your income enough to amass a large sum. And emergencies are, by definition, hard to plan for.
Personal loans are one of the fastest growing forms of consumer debt, with $305 billion in existing personal loan debt as of the end of the second quarter of 2019. This could be because unsecured personal loans come with a slew of potential advantages—unlike mortgages or car loans, they can be used for a variety of things. That flexibility makes them a solid resource for funding a wide array of responsibilities or life goals.
Compared to the current typical credit card interest rate of just over 17% , that might translate to big savings, in comparison, over the life of your loan.
But debt is still debt. The growth in unsecured personal loan debt could also be because they are easier to come by today than ever before, as more people are looking to personal loans to consolidate debt or to fund large purchases.
If you’re tempted to extend your term or think you want or need to borrow more, here are some key things to keep in mind—and to think twice about.
What if You Want to Borrow More in Personal Loans
Unsecured personal loans are available from a variety of banks, credit unions, online lenders, nonprofit organizations, and other institutions.
If you’ve already taken out a personal loan but need additional funds, you might be wondering if you can increase your current loan’s amount. (Note: This is a decision that should be considered carefully, as increasing debt can have negative consequences, such as lowering your credit score. It’s probably more worthwhile to consider options that will help you lower your existing debt, first.)
In most cases, the answer is no. But instead of increasing your loan balance, you may be able to apply for a second loan. This can have similar consequences as increasing your existing loan amount, however, so the same warnings above apply here.
While eligibility can vary by lender, in some cases in order to qualify for an additional personal loan, you need to at least have made three consecutive scheduled payments on your existing loan. There’s no guarantee that you’ll receive another loan when you apply; it depends upon many factors. To be prepared, it helps to understand the general process.
Considerations Before Applying for a New Personal Loan
Before you take out more debt, it’s a good idea to take a step back and consider whether you truly need to borrow the money.
Loans come with interest that accrues over time, so you are paying more for the borrowed money as the loan amortizes. If you can instead save for your goal by trimming expenses or taking on a side hustle, that can help you spend less in the long term.
Carrying a lot of debt relative to your income can also make it harder to qualify for other loans you might need, such as a mortgage loan and (you guessed it) another personal loan.
(Keep in mind that while personal loans can be used for any personal or household expenses, they are generally not eligible to buy property, make investments, grow a business, buy stock, or pay for college.)
Instead of applying for a new loan, it may be wiser to work on paying off existing debt first. The last thing you want to do is dig yourself into a deeper financial hole. Taking on more debt, aside from adding more stress to your life, also puts you at greater risk for defaulting on payments, and can lower/hurt your credit score.
The most important thing is to borrow responsibly, which includes having a plan to pay it back.
Applying for a New Personal Loan
If you’ve decided that borrowing makes sense for you, it’s possible to apply for an additional personal loan with SoFi. Since you already have an existing loan, you may already meet the eligibility criteria, but you’ll want to make sure nothing has changed.
Once you’ve reviewed the eligibility requirements, you may choose to submit your application. You can find out what interest rate and term options you may qualify for in about two minutes, based on a soft credit pull that doesn’t affect your credit score. If you move forward with a full application, a hard pull on your credit report is a likely next step.
Applying with a Co-Applicant
It can be disappointing if your loan application is not successful. This may happen for a number of reasons, including sub-optimal credit history, a lack of steady income, insufficient cash flow, and other factors.
But, you still may have another option for getting a personal loan: You may be able to re-apply with a co-borrower or co-applicant.
In some cases, If the co-applicant has a strong credit history and income, this may be able to help you obtain a loan or qualify for a lower interest rate.
If you receive the loan, both you and the co-applicant (who typically becomes the co-borrower) will be responsible for paying it off.
That means if either one of you fails to live up to your agreement in making payments, the other one can be held responsible for the full amount of the loan. The co-borrower typically can’t be removed from the loan unless he or she dies or you pay the loan off entirely.
If you aren’t able to find a co-applicant or still don’t qualify, the biggest help for qualifying in the future might be time. Building up a history of making debt payments on time, paying down other debt, or increasing your income via a new job or a side gig could all be helpful eventually. There’s no magic formula to guarantee that you’ll receive another loan, of course, but these steps can be a good place to start.
Again, it’s also worth considering other options that don’t include taking on more debt. Can you ask your work for a raise? What about taking on a side-hustle? It doesn’t hurt to explore other options, and in fact may only help in the long run.
Although taking on more debt is not ideal, there may come a time when you may not have another option. And if you qualify for a second personal loan with SoFi, the same member benefits apply: career coaching (and the potential to pause your payments if you lose your job), competitive interest rates, and the ability to borrow up to $100,000, depending on what you qualify for.
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