Unless you’re taking out a loan to pay for something with a specific price tag, there’s always a chance that it won’t end up covering all of your needs. It’s a bit like shopping for a dinner party: buy too much and you’ll end up with a fridge full of spoiled food; buy too little and your guests will go hungry.
Let’s say you’re currently having your master bathroom remodeled. You took out a $5,000 personal loan to cover the costs, and everything is going smoothly. 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? Can you have more than one personal loan? And if so, when does it make sense and what are the potential risks?
Can You Have Multiple Personal Loans at Once?
Technically, there is no limit to how many personal loans you can have at once. Lenders may allow individuals to take out additional loans if they have paid off part of the initial balance of the first loan and have a history of on-time repayments, though policies will vary by lender.
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 necessary. In general, these are times when you’re faced with unexpected expenses.
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 provide a payment plan, so your options may include saving up the money in cash, crowdfunding, or applying for a personal loan.
Similarly, say you need money for emergency home repairs, unexpected medical expenses, veterinary bills, or automotive repairs. If ignoring an expense will cause more financial challenges than taking on more debt, a new loan may be 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, which 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, and an uptick in both can, in turn, affect the interest rate available to you for a new loan.
Related: Can Personal Loans Hurt Your Credit?
Juggling the payments is another potential issue. An additional loan means another bill to pay every month. If you miss any payments—whether on your student loans, mortgage, or 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 kind of loan product, your application could be denied because of your debt-to-income ratio. 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.
Managing Multiple Personal Loans
If you have two or more personal loans, having a solid repayment strategy helps prevent late payments and other potential problems. Even if you’re a responsible borrower, implementing a system can help make the entire repayment process smoother.
One of the simplest methods to help avoid late payments is to set up automatic bill pay. You can typically do this through your bank’s bill payment system or through the lender.
Autopay may work well for people who have trouble remembering to pay their bills until right before the due date or after receiving a late notice. It also takes willpower out of the equation.
Most lenders should allow you to set up automatic payments, but it may take one or more billing cycles to kick in. If you’ve just set up autopay, you may want to monitor the account to double-check the payment has gone through.
If you don’t like the idea of autopay, you may still want a management system to help keep yourself on track. Some people like setting aside one day every week or month to pay their bills by hand, while others create calendar reminders for their various payment due dates.
The goal should be to devise a method that works best for your lifestyle and personality. You may consider leveraging technology, such as SoFi Relay, to help keep track of your budget while you pay off these loans.
Exploring a Personal Loan
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, no prepayment fees, and no late fees.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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