Technically, there is no limit to how many personal loans you can have at once. Lenders may approve a second or third loan if the borrower has paid off part of the first loan and has a history of on-time repayment.
In fact, it’s fairly common for one loan to fall short of covering all of a borrower’s needs. Let’s say you’re remodeling your primary bathroom. You take out a $5,000 personal loan to cover the costs. But then you discover major plumbing issues that will cost thousands more to fix, making your $5,000 budget woefully inadequate.
What is someone in this situation supposed to do? Even if you can have more than one personal loan, should you? We’ll investigate when it makes sense to take out additional loans, and what the potential risks are.
Can You Have Multiple Personal Loans at Once?
There is no law against having multiple personal loans, either from the same bank or different lenders. However, some lenders limit the number of concurrent loans they’ll extend to an individual. Other lenders have no such limit, but do cap the total amount one person can borrow.
Personal loan interest rates tend to be low compared to the alternatives. So carrying multiple loans at once can be a smart way to avoid the trap of revolving credit.
However, many lenders allow individuals to take out additional loans only if they have paid off part of the initial balance of the first loan — three to six payments, for instance.
Does It Ever Make Sense to Have Multiple Loans?
It’s never a good idea to take on debt unnecessarily, but there are a few situations where taking out an additional personal loan might be your best option.
Let’s say you take out a personal loan to consolidate credit card debt — one of the more common reasons for applying for a personal loan. After a year of making payments, you and your spouse decide to start a family. But you need fertility treatments, which aren’t covered by your insurance. The doctor requires payment upfront and doesn’t offer payment plans. A personal loan may be preferable to running up credit card debt.
Similarly, say you need money for emergency home repairs, veterinary bills, or automotive repairs. If ignoring an expense will cause more financial challenges and emotional stress than taking on more debt, a new loan is a viable option.
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Ways Multiple Personal Loans Can Affect Your Credit
Any time you open a new loan, the repercussions ripple out to your credit report in a few different ways. First, opening a loan produces a hard inquiry on your credit report, and remains on it for two years.
Too many hard inquiries will affect your credit score, because the credit scoring models most commonly used will verify how recently and how often you’ve applied for credit. An uptick in both can, in turn, affect the interest rate available to you for a new loan.
Recommended: Can Personal Loans Hurt Your Credit?
Juggling multiple payments is another issue. An additional loan means another bill to pay every month. If you miss any payments — whether on your student loans, mortgage, credit cards, or personal loans — it can have consequences for your credit score. Payment history counts for a whopping 35% of your total FICO® Score. Beware of overborrowing when considering multiple loans.
Other Potential Complications
If you have multiple personal loans and are applying for a mortgage or other type of loan, your application could be denied because of your debt-to-income ratio (DTI). This ratio is calculated by adding up your monthly debt payments and dividing them by your monthly gross income.
Every lender will have different DTI requirements when considering someone for a loan, so check with your lender for specifics.
Getting Multiple Loans From the Same Lender
If you’re considering applying for a second loan from the same lender, you’ll first want to consider the following:
• Ensure your current loan is in good standing. If you have missed or late payments, your lender can either decline your second loan application or charge you a higher interest rate.
• Check whether your lender limits the number of outstanding personal loans, or caps the amount you can borrow.
• Calculate your overall DTI, including any auto loans, mortgage, credit cards, and student loans. If the sum of all your monthly loan payments comes close to 50% of your income, another personal loan may not be in the cards. Many lenders recommend a DTI of no more than 36%.
If you believe you’ll meet the lender’s requirements for a second personal loan — and you feel comfortable making the additional monthly payment — getting an additional loan from the same lender could be the right strategy.
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Qualifying for Another Personal Loan
Getting approved for a personal loan from another lender isn’t much different. While you won’t have to worry about a cap on the number of loans you have or the combined amount you can borrow, you will have to show that your DTI falls within recommended parameters.
The second lender will likely do a hard inquiry (or hard pull) on your credit report. They will see the payment history for your other personal loan, as well as other debt going back seven years. You can prepare by following the guidelines above in the first and third bullets.
Alternatives to Personal Loans
When you need to cover unexpected expenses, personal loans are a great resource — but not your only option. What’s right for you will depend on how much you want to borrow, and how long you’ll need to pay the money back. Here are some alternatives to personal loans you might consider.
• Credit card. If your credit score is high, you can apply for a 0% APR credit card. The introductory rate is for a limited time — generally 12 to 18 months. If you can pay off the purchase by then, you’ll save a lot on interest.
• Buy now, pay later (BNPL). Also known as a point-of-sale loan, BNPL gives you more time to pay off a large purchase — from several weeks to several years, sometimes at 0% interest. But terms and fees vary wildly, so make sure you understand what you’re signing up for.
• 401(k) loan. If you have funds in a 401(k) plan, you can borrow against them without any penalties — and the interest you’re charged goes back into your investment plan. This might make sense for short-term loans of 1 year or less.
• Home equity loan. A home equity loan is a type of secured loan, meaning you offer your home as collateral in the event of default. These loans offer low fixed interest rates for those who qualify, as well as longer terms.
• Payday loan. Also known as cash-advance loans, these are short-term, high-interest unsecured personal loans provided by small local merchants. Borrowers must show proof of income via a recent paycheck, but no credit check or collateral is required. The risks of payday loans are so great that many states have outlawed them.
There is no law against having multiple personal loans. However, some lenders limit the number of concurrent loans they’ll extend to an individual, or cap the total amount one person can borrow. If you have two or more personal loans, having a solid repayment strategy helps prevent late payments and other potential problems. One of the simplest methods to avoid late payments is to set up automatic bill pay.
You may consider leveraging technology, such as SoFi Relay, to help keep track of your budget while you pay off these loans. If you’re looking to apply for a personal loan, consider seeing what options are available at SoFi. SoFi’s Personal Loans have absolutely no fees — no origination fees required, no prepayment fees, and no late fees.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.