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Getting mortgage preapproval can give you an edge in the home-buying process, especially when the housing market is tight. A mortgage preapproval from a lender lets sellers know that you have tentatively been approved for a specific loan type and amount. Not only does this show them that you’re a serious home shopper, it also helps give you a good sense of your budget as you go house-hunting.

Here, you’ll learn the ins and outs of how to get preapproved for a home loan.

What Is Mortgage Preapproval?

Mortgage preapproval involves a thorough review of your credit and financial history. If you look like a good candidate for a mortgage, a lender will issue a letter stating that you qualify for a loan of a certain amount at a certain interest rate. The letter is an offer — but not a commitment — to lend you a specific amount. It’s good for up to 90 days, depending on the lender.

You’ll want to shop for homes within the price range of your preapproved mortgage. Armed with your preapproval for a home loan, you can show sellers that you are a serious buyer with the means to purchase a property. In the eyes of the seller, preapproval can often push you ahead of other potential buyers who have not yet been approved for a mortgage and make it easier to compete when there are multiple offers on a house.

Once you find a house that you want to buy, you can make an offer immediately based on the loan amount for which you are preapproved. And if the seller accepts, it will be time to finalize your mortgage application. At this point, a loan underwriter will review your application and conduct other due diligence measures, such as having the house appraised to make sure it is valued at the price it’s selling for. If all goes well, the lender will issue another letter called a commitment letter, which officially seals the deal on your loan, and you can schedule a closing date.

When Should I Get Preapproved for a Home Loan?

Preapproval typically lasts for 90 days, at most, so you want to seek it when you are actively in the market for a new home. Maybe you’ve done some initial online research into available properties. Ideally, you’ve also had a good look at your finances and thought about how much you have available to spend on a down payment as well as what monthly mortgage payments you can afford long-term. It takes around 10 days after you submit a request to be preapproved, so factor that timing into your house search as well.

Mortgage Preapproval vs. Prequalification

If you are house hunting, you will likely hear two different terms regarding early mortgage moves: prequalification vs. preapproval. Prequalification is a simple, less involved look at your financial qualifications for a mortgage. Preapproval for a home loan is a more in-depth review of your finances and an indicator that your loan application will likely move forward smoothly. Each has its advantages — and its moment.

Mortgage Prequalification

Getting prequalified for a home loan involves a review of a few financial details — usually self-reported — such as income, assets, and debt. The lender will then estimate what size mortgage you can afford.

Pros of Mortgage Prequalification

•   It’s fast. The process can often be done in minutes, by phone or online.

•   You’ll zero in on house prices. Prequalifying for a home loan quickly gives you an idea of what your monthly payment might be and how much house you can afford.

•   You can shop around. You can prequalify with multiple lenders to see what types of terms and interest rates they offer.

•   It’s easy on your credit score. Prequalification will not affect your credit score because it only requires a “soft inquiry” into your credit record.

Cons of Mortgage Prequalification

•   It’s no guarantee. Because it is an unverified, high-level look at your finances, prequalification doesn’t ensure that you will actually qualify for a mortgage.

•   It won’t help you bargain. Being prequalified won’t help you negotiate a lower price with a seller or compete against other bidders in a competitive market.

Mortgage Preapproval

Requesting a mortgage preapproval is a more complicated process than getting prequalified. You’ll have to fill out an application with your chosen lender and agree to a credit check. The credit check will be a “hard pull” which will ding your credit score by a few points. You’ll also provide information about your income and assets. The evaluation process can take 10 days or more. Again, preapproval doesn’t mean it’s a done deal that you’ll get the loan, but it is a solid indication of your financial situation and ability to purchase a home.

There are a number of advantages to getting preapproval for a home loan, especially if you’re shopping in a fast-moving market.

Pros of Mortgage Preapproval:

•   It gives you an edge. Sellers will see that you are a serious buyer and have assurance that your financing won’t fall through and sink the deal.

•   It helps you get loan shopping done. When you’ve found your dream house, you don’t want to delay putting in an offer because you have to spend time getting your documents together and pursuing a loan. Going through the preapproval process helps you take care of these details before you’re in a fast-moving situation.

Cons of Mortgage Preapproval:

•   A mortgage preapproval expires. How long does a mortgage preapproval last? As noted above, the letter is only good for a certain period of time, usually 90 days, so you’ll want to make sure you’re seriously ready to start shopping once you have your mortgage preapproval in hand.

•   The application is time-consuming. You’ll need to provide a lot of documentation to get a mortgage preapproval and agree to a hard credit inquiry, which can drag down your credit score, though usually only by a bit.

•   Nothing is guaranteed. Even though your home loan preapproval letter likely has details on your loan amount and type, it is only a tentative approval — you still can’t be 100% sure that you will get the loan.

Here are the basic comparison points of prequalification vs. preapproval:

Steps to Get Preapproved for a Home Loan

Getting preapproved for a home loan will take some time, so it’s good to get the process started before you are ready to make an offer on a home. Here are some important steps along the way.

Check Your Credit Score

If you’ve established a credit history, a first step before applying for a mortgage is to check your credit reports, which are a history of your credit compiled from sources like banks, credit card companies, collection agencies, and the government.

The information is collected by the three main credit reporting bureaus: TransUnion®, Equifax®, and Experian®. You’ll want to make sure that the information on your credit reports is correct. Ordering the reports is free once a week through AnnualCreditReport.com.

If you find any mistakes in your credit reports, contact the credit reporting agencies immediately to let them know. You don’t want any incorrect information weighing down your credit score, putting your chances for preapproval at risk.

The free credit reports provided by the nationwide credit reporting agencies do not include your credit score, a number typically between 300 and 850. You can purchase your score directly from the credit reporting agencies, or from FICO®. Your credit card company also may provide your credit score for free, or you could try a money tracker app that updates your credit score weekly and tracks your spending at no cost.

Calculate Your Potential Mortgage

To help with the prequalification and preapproval process, use the mortgage calculator below to see what your estimated monthly mortgage would be based on down payment, interest rate, and loan terms.

Gather Documentation

Your credit score is only one of many factors a potential lender will consider when deciding on your mortgage qualification. So collect the many other documents you will need to paint a full picture of your financial life. Ask the lender what is needed, specifically. The list will likely include:

•   Recent pay stubs

•   Recent bank and investment account statements

•   Two years of tax returns and/or W2s, possibly more if you are self-employed

•   Verification of alimony or child support payments received and the court documents spelling out the terms of the payments

•   Social Security award letter, if you derive income from Social Security

•   Certificate of Eligibility from the VA, if you are applying for a VA loan

•   Gift letter documenting any money you are receiving from family or other sources toward a down payment

Receive Your Mortgage Preapproval Letter

Your first instinct when you receive preapproval will likely be to jump for joy. But next, take a moment to ask the lender if they made any assumptions about your finances in order to issue the letter, or if they flagged anything that could lead to you being denied a mortgage later on or that could increase your costs. Doing this could help you head off future problems that might scuttle a deal.

Upping Your Odds of Mortgage Preapproval

There are a number of steps you can take to improve your chances of preapproval or to increase the amount your lender may approve you for.

Build Your Credit

When you apply for any type of loan, lenders want to see that you have a history of properly managing your debt before they offer you credit themselves.

You can build your credit history by opening and using a credit card and paying your bills on time. Or you could consider having regular payments, such as your rent, tracked and added to your credit score.

Recommended: What Credit Score Is Needed to Buy a House?

Stay on Top of Debt

Your ability to pay your bills on time has a big impact on your credit score. If your budget allows, you should aim to make payments in full.

If you have any debts that are dragging down your credit score — for example, debts that are in collection — it’s smart to work on paying them off first, as this could help build your score.

“Really look at your budget and work your way backwards,” explains Brian Walsh, CFP® at SoFi, on planning for a home mortgage.

Recommended: Fixed-Rate vs. Adjustable-Rate Mortgages

Watch Your Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is your monthly debt payments divided by your monthly gross income. If you have $1,000 a month in debt payments and make $5,000 a month, your DTI ratio is $1,000 divided by $5,000, or 20%.

Mortgage lenders typically like to see a DTI ratio of 36% or less. Some may qualify borrowers with a higher DTI, up to 43%. Lenders may assume that borrowers with a high DTI ratio will have a harder time making their mortgage payments.

If you’re seeking preapproval for a mortgage, it may be beneficial to keep the ratio in check by avoiding large purchases. For example, you may want to hold off on buying a new car until you’ve been preapproved.

Prove Consistent Income

Your lender will want to know that you have enough money coming in each month to cover a potential mortgage payment, so the lender will likely want proof of consistent income for at least two years (that means pay stubs, W-2s, etc.).

For some potential borrowers, such as freelancers, this may be a tricky process since they may have income from various sources. Keep all pay stubs, tax returns, and other proof of income, and be prepared to show those to your lender.

What Happens If Your Mortgage Preapproval is Rejected?

Rejection hurts. But if you aren’t preapproved or you aren’t approved for a large enough mortgage to buy the house you want, you also aren’t powerless. You can ask the lender why it said “no.” This will give you an idea about what you might need to work on in order to secure the mortgage you want.

Then you may want to work on the factors that your lender saw as a sticking point to preapproval. You can continue to work to build your credit score, lower your DTI ratio, or save for a higher down payment.

If you’re able to pay more upfront, you will typically lower your monthly mortgage payments. Once you’ve worked to make yourself a better candidate for a mortgage, you can apply for preapproval again.

Dream Home Quiz

The Takeaway

In a competitive market, having a mortgage preapproval letter in hand may give a house hunter an edge. After all, the letter states that the would-be buyer tentatively qualifies for a home loan of a certain amount.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What happens during the preapproval process?

During the mortgage preapproval process, you’ll provide lots of background information on your finances. A potential lender will also check your credit score. If the lender feels you’re a suitable candidate for a loan, you’ll receive a letter that you can show a seller to potentially better your chances when making an offer on a home.

Do preapprovals hurt your credit score?

The lender will do a “hard pull” to obtain your credit score prior to a preapproval. This may cause your rating to drop by a few points, but it should rebound quickly if you pay your bills on time.

How far in advance should I get preapproved for a mortgage?

Get preapproved for a mortgage when you have a sense of the housing costs where you are shopping for a home, and you are ready to start looking in earnest.

Which is better: preapproval or prequalification?

Prequalification and preapproval each have a place in the homebuying process. Prequalification is helpful when you are trying to get a sense of what you can afford and which lender might offer the best terms. It’s time for preapproval when you are serious about searching for a home and have researched possible lenders.

Is it OK to get multiple preapprovals?

You only need one preapproval, but it is fine to get a few if you want to see what loan amounts and rates you might qualify for. Make all applications within a 45-day window — the time frame during which multiple lenders can check your credit without each check having an additional impact on your score.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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If your credit is not quite up to a lender’s preferred level to get favorable interest rates and terms on your own, you might consider a joint personal loan. With this type of loan, you would have a co-borrower, an additional borrower who is obligated to repay the debt alongside you, the primary borrower. A co-borrower who has solid credit, income, and other financial credentials can help you qualify for a personal loan.

Here are key things to know about using a co-borrower on a personal loan.

What Are Joint Personal Loans?

Joint personal loans are loans that take into account multiple borrowers’ creditworthiness in the approval process. There are typically two borrowers on this type of loan — a primary and a secondary borrower — to establish joint personal loan eligibility.

Being a co-borrower on a loan comes with different rights and responsibilities than being a cosigner on a loan.

•   Co-borrowers, along with the primary borrower, have equal ownership of loan funds or what is purchased with the loan funds and are equally responsible for repayment of the loan over the life of the loan.

•   Cosigners have no ownership of the loan funds or what they’re used to purchase, and they are responsible for repayment only if the primary borrower fails to make payments.

How to Use Joint Personal Loans

If you don’t feel confident about qualifying for a loan, or have concerns about a potentially higher interest rate due to your overall creditworthiness or other reasons, finding a reliable co-borrower might help improve your chances of approval, along with the interest rate and terms you’re offered.

Couples can use a joint personal loan for a wide variety of purposes, including consolidating high-interest debts, paying for a large expense or event (like a wedding), or funding a remodeling project.

Recommended: Using Collateral on a Personal Loan

Why Do People Use Joint Personal Loans?

One common reason why someone might consider a joint personal loan is that they cannot qualify for a loan on their own, or they would like to snag a lower interest rate or qualify for a larger loan amount than they could on their own.

Some reasons people may seek a co-borrower are:

•   They don’t have a long credit history.

•   They’ve just entered the workforce.

•   They’re in the process of rebuilding their credit.

•   They are seeking a larger loan than they could on their own.

How Much Can You Save With Joint Personal Loans?

Having two borrowers on one personal loan may help you to qualify for a more favorable interest rate than if just one person’s income and credit are considered. Different lenders will have different qualification requirements, though, so it’s a good idea to compare lenders.

Using a joint personal loan for debt consolidation can be one way to lower the amount of interest paid on outstanding debt. Again, how much savings is accomplished depends on multiple factors, such as the interest rate offered and how long it takes to pay down the debt.

Factors That Affect Joint Loan Approval

Here are some important points about applying for a loan with a co-borrower and understanding what impacts your odds for approval.

Combined Income and Debt Obligations

When your application for a joint personal loan is reviewed, the lender will look at your combined income and debt obligations. Perhaps the primary borrower has a relatively low income and high debt load. By adding a co-borrower who has a strong salary (say, a spouse’s salary in the six figures) and minimal debt, the odds for loan approval could be enhanced.

Say that the primary applicant has a debt-to-income ratio, or DTI, of 48%, which is above the 36% many lenders prefer. If a co-borrower has a DTI of 22%, the couple’s DTI as a whole is 35%, bringing it to a level that may gain approval.

Credit History of Both Applicants

Similarly, lenders will take into account both applicants’ creditworthiness. Perhaps the primary borrower has what’s known as a thin file, meaning they don’t have a very deep credit history, or has a fair credit score. If their co-borrower has a credit score in a higher range (very good or exceptional), that could convince a lender to approve the loan and potentially at a lower rate and with more favorable terms. The co-borrower could help assure the lender of the duo’s creditworthiness.

What Credit Score Is Required for a Joint Personal Loan?

There is no definite answer to this question, but, in general, applicants with higher credit scores qualify for loans with lower average personal loan interest rates. And, vice versa, applicants with lower credit scores generally qualify for loans with higher interest rates.

Lenders tend to be risk-averse and prefer to lend money to people who they believe will repay it in full and on time. An applicant’s credit report — a summary of how responsible they are with credit that has been extended to them in the past — and credit score are tools lenders use to assess risk.

Before applying for a joint personal loan, it’s a good idea to review your credit report. If there are errors or discrepancies, you can file a dispute with the credit reporting agency. If you have poor credit or a limited credit history, you might consider taking some time to improve your credit profile before applying for a loan. Lenders will look at both applicants’ credit reports during the joint personal loan approval process, so it’s worth it for your credit to be in good shape.

Recommended: What Credit Score Do You Need for a Personal Loan?

Individual vs Joint Loan Applications

The basic process of applying for a loan is the same, no matter the number of applicants. Lenders will typically request the same information on either an individual or a joint loan application: proof of identity and address and verification of employment and income, in addition to any lender-specific information. For an individual loan application, there is just one person’s information to verify. Joint loan applications require information for each applicant.

Cosigned Loan vs Joint Personal Loan: The Advantages

Arguably, the primary borrower on either a cosigned loan or a joint personal loan has a bigger advantage than the cosigner or co-borrower. Depending on one’s perspective, however, all parties involved can reap benefits from these partnerships.

The Advantages of Choosing a Cosigned Loan

The advantage lies almost exclusively with the primary borrower on a cosigned loan. If they default, the cosigner is responsible for repaying the loan, although the primary borrower’s credit will likely be negatively affected. Ownership of the loan funds or what they purchased with the money is solely the primary borrower’s.

A personal loan cosigner’s main advantage may be in the form of a benevolent feeling from helping a close friend or family member.

The Advantages of Choosing a Joint Personal Loan

The main advantages of a joint loan are two-fold. There is equal ownership of the loan funds or the property purchased with those funds. Choosing a joint loan also means you may be able to present a more positive financial profile when applying than you could alone, signaling to lenders that it’s more likely the monthly loan payments will be made. This could pay off with a lower interest rate and more favorable terms.

Because joint loans give both co-borrowers equal rights, they are well-suited for people who already have joint finances or own assets together.

Cosigned Loan vs Joint Personal Loan: The Disadvantages

Both cosigned and joint loans include an additional borrower. However, a co-borrower taking out a joint loan has different rights and responsibilities than a cosigner, which can be risky.

The Disadvantages of Choosing a Cosigned Loan

The disadvantages of a cosigned loan lie mostly with the cosigner, not the primary borrower. The cosigner does not have any ownership rights to the loan funds or anything purchased with the loan funds. They are, however, responsible for repayment of the loan if the primary borrower fails to make payments.

The cosigner’s credit can be negatively affected if the primary borrower defaults on the loan, and their future borrowing power could be affected if a lender decides extending more credit would be too risky.

The Disadvantages of Choosing a Joint Personal Loan

People who already share financial responsibilities — married couples or parents and children, for example — may be the ones who consider joint personal loans, so there is typically some familiarity present.

That trust matters because co-borrowers have equal ownership rights to the loan funds or what the loan funds purchased. And it’s also important to have confidence in a co-borrower’s ability to repay the loan because each borrower is equally responsible for repayment over the entire life of the loan.

What’s the Better Loan Option?

If you’re seeking a loan with a spouse or relative and one of you has the strong credit history needed to get a favorable interest rate and terms, then a joint loan as co-borrowers may be right for you.

However, if you’d rather have a loan in your name with a little added security, then having a cosigner may make more sense.

No matter which situation you find yourself in, it’s important to weigh all of the options and do the necessary research that will allow you to arrive at the best joint personal loan option for you. (You might also consider personal loan alternatives as part of your research.)

After all, taking out a loan and repaying it responsibly has the power to put someone on a path to a more secure financial future, but it can also come with risks for each party.

Recommended: Exploring the Pros & Cons of Personal Loans

Where Do You Find a Joint Personal Loan?

It’s not uncommon for lenders to offer joint personal loans, but some research is necessary to find the right lender for your unique financial situation.

Looking at lenders of joint personal loans online is a good first step. Prequalifying to check joint personal loan eligibility is a fairly quick and easy process.

If you’re already an established customer at a local bank or credit union, you may also want to look at loan options there.

Tips for Applying for a Joint Personal Loan

If you decide to pursue a joint personal loan, consider these points to make the process easier.

Communicate Financial Responsibilities Clearly

As you apply for a joint personal loan, it’s wise to make sure you both agree on the details, such as the loan amount, the monthly payment you can afford, and who will pay it (will you split it 50/50?), and when. Develop a contingency plan if you struggle to make a payment.

Compare Lenders and Loan Terms Together

It’s also important to make sure the two of you are aligned on reviewing and deciding upon your loan. It’s wise to consider at least a few loan offers to see what rates and terms are available. For instance, a shorter loan term can mean higher monthly payments but less interest paid over the life of the loan. That might be preferable, if you can afford it, versus a longer term with a lower monthly payment, because that winds up often costing more in total.

Also make sure you both understand the consequences of late or missed payments before embarking on the loan together.

The Takeaway

Co-borrowers may help a primary borrower secure a personal loan by presenting a more positive financial profile and securing more favorable rates. However, these joint loans also require a great deal of forethought since both borrowers have access to the funds and responsibility for repaying the debt.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Can you apply for joint personal loans?

As long as the lender allows co-borrowers, you can apply for a joint personal loan.

What is the maximum amount of people for a joint personal loan?

Typically, a joint personal loan has two co-borrowers, but the maximum number of co-borrowers is up to the individual lender. Some allow for more than two borrowers.

Do joint personal loans get approved faster?

It’s likely to take more time for a joint personal loan to be approved than an individual loan because the lender will check the credit of each applicant.

Does a joint loan affect both credit scores?

Yes, a joint loan affects both borrowers’ credit scores. If loan payments are made on time, the borrowers could see a positive impact on their credit. If, however, payments are late or missed entirely, that can negatively impact each of the borrowers’ credit.

Can one person be removed from a joint personal loan?

Removing one person from a joint personal loan is dependent on the lender’s specific guidelines. It can be a complicated process that may involve refinancing the loan into a new individual loan, provided the solo borrower qualifies.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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If you already have a personal loan but need more funds, you may wonder if you can take out another one. Some lenders will approve you for a second personal loan if you stay under their maximum borrowing cap. You may also be able to get a new personal loan from a different lender, provided you meet their requirements. Already having a personal loan, however, could make it harder to get approved.

Read on to learn more about how many personal loans you can have at once, how stacking personal loans can impact your credit, and alternatives to consider.

Can You Have More Than One Personal Loan at Once?

Technically, there is no limit on how many personal loans you can have. Whether you can get approved for a second or third personal loan will depend on the lender and your qualifications as a borrower.

Some lenders limit the number of concurrent personal loans you can have to one or two. They might also restrict you to a maximum borrowing amount (such as $50,000) across all of the personal loans you hold with them.

If you’re maxed out with your current lender, you may be able to get a new personal loan with a different lender. Generally, lenders don’t reject applicants solely due to having an existing loan. However, they may decline approval if they feel you carry too much debt and might struggle to make an additional payment.

Does It Ever Make Sense to Have Multiple Loans?

There are some situations where it can make sense to have more than one personal loan. If you took out a loan to consolidate credit card debt and then got hit with an unexpected medical or car repair bill, for example, you may be better off getting a second personal loan rather than running up new and expensive credit card debt. Before taking out another personal loan, however, it’s worth checking to see if you might qualify for a lower-cost way to borrow money (more on that below).

If you’re looking to get another personal loan to bridge a gap between your spending and income, on the other hand, taking on additional debt could add to the problem. You may be better off looking at ways to reduce expenses and pay down your existing debt.

Pros and Cons of Taking Out Multiple Personal Loans

If you’re seriously considering taking out a second or third personal loan, it’s wise to familiarize yourself with the benefits and disadvantages of doing so.

Pros of Multiple Personal Loans

On the plus side, pros include:

•   Access to more cash

•   Often a quick approval and disbursement process

•   Ability to use loans for different purposes, such as debt consolidation and a home improvement project

•   Credit building, provided the debts are handled responsibly

Cons of Multiple Personal Loans

Next, consider the downsides of taking out multiple personal loans:

•   Spending more on interest

•   More stress on your budget, perhaps meaning you can’t save as much

•   Increased debt-to-income ratio (DTI)

•   More opportunities to miss a payment, which can negatively impact your credit score

•   Applying for new loans typically lowers your credit score by several points temporarily

Here is this information in chart form:

Ways Multiple Personal Loans Can Affect Your Credit

Having multiple personal loans can have both negative and positive impacts on your credit, as noted above. Any time you apply for new credit, the lender will do a hard pull on your credit, which can cause a small, temporary dip in your scores. Multiple hard credit inquiries in a short period of time, however, can significantly harm your credit. Late or missed payments can also negatively affect your credit score.

On the plus side, taking out a new personal loan and handling it responsibly (by making on-time payments) can positively influence your credit over time.

Other Potential Complications

Here’s a look at some other ways that having multiple personal loans can affect your finances.

•  Multiple payments: A new personal loan means a new monthly payment. Before you add to your debts, it’s a good idea to review your budget to ensure you can manage an additional monthly loan payment.

•  Debt-to-income ratio: Each personal loan impacts your debt-to-income ratio (DTI). This ratio measures how much of your monthly income goes toward current debt. A higher DTI can make it harder to qualify for other types of loans, such as a mortgage, in the future.

•  Higher interest rates: A lender could approve you for an additional personal loan but at a high annual percentage rate (APR), which is the personal loan’s interest rate blended with applicable fees and charges, because of your existing debt.

Getting Multiple Loans From the Same Lender

Before applying for an additional personal loan from your current lender, it’s a good idea to check their policies. Some lenders limit the number of outstanding personal loans you can take out at one time or cap the total amount you can borrow. In addition, some lenders require that you make a certain number of consecutive on-time payments (such as three or six) toward an existing loan before you can apply for another loan.

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 a smart strategy.

Recommended: Average Personal Loan Interest Rates

Qualifying for Another Personal Loan

If you apply for a personal loan with another lender, you won’t have to worry about a cap on the number of loans you have or the combined amount you can borrow. However, you will have to go through the whole application process, and the lender will likely perform a hard credit check. They will factor in how much debt you already carry, even though it may be with another lender.

You can get an idea of whether or not you’ll get approved for an additional personal loan by calculating your current DTI. To do this, simply add up all your current debt payments, including any auto loans, mortgage, credit cards, and student loans. If that number comes close to 50% of your monthly gross (pre-tax) income, another personal loan may not be in the cards. The max DTI for a personal loan is typically 50%. However, many lenders like to see a DTI that is less than 36%.

Recommended: Secured vs Unsecured Personal Loans: Comparison

Alternatives to Multiple Personal Loans

When you need to cover unexpected expenses, a personal loan (whether for several hundred dollars or a $15,000 personal loan or more) can be a great resource — but it’s not your only option. Here are some alternatives to personal loans you might consider.

0% Interest Credit Card

If your credit is strong, you may be able to take advantage of a credit card with a 0% introductory APR. The promo rate can last up to 21 months; after that, the card will reset to its regular APR.

If you can use the card to cover your costs and repay the balance before the 0% rate ends, it’s the equivalent to an interest-free loan. If you’ll need a significantly longer period of time, however, this route could end up costing more than a personal loan.

Home Equity Loans or Lines of Credit

A home equity loan or home equity line of credit (HELOC) may be worth exploring if you own a home and have built up significant equity. A home equity loan is a single lump sum you repay (plus interest) over time. A HELOC is a revolving line of credit that you can draw from as needed; you pay interest only on what you use.

Home equity loans and HELOCs are secured by your home, which lowers risk for the lender. As a result, they may come with lower interest rates than personal loans. A major downside of this type of loan is that, if you default on the loan, you can lose your home.

Debt Consolidation Loan

A debt consolidation loan is actually a type of personal loan, but it can be used to replace multiple debts with a single, more convenient loan.

Here’s how debt consolidation works:

•  Say, you already have a $5,000 personal loan.

•  You are also carrying credit card debt totaling a few thousand dollars.

•  Getting a new $10,000 personal loan can allow you to eliminate both of those debts. The funds from the new loan would pay off your existing loan and credit card balances, and you would then make payments on your new single personal loans until it’s paid off.

Having one loan vs. many can help some people avoid paying a bill late or missing a payment altogether.

The Takeaway

You can have as many personal loans as you like, provided you can get approved. Some lenders limit the number of loans they’ll extend to an individual at any one time, or cap the total amount one person can borrow. To get an additional personal loan with a new lender, you’ll need to meet their qualification requirements. Having an existing personal loan could make this harder to do. However, you may get approved if your monthly income is sufficient to cover the new payment. Before you jump in, you’ll want to consider how it will impact your overall debt, credit score, and credit history.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How long should you wait between loans?

A general rule of thumb is to wait at least six months between applying for new credit. Submitting multiple loan applications in a short time frame can result in several hard inquiries on your credit report, which can lower your credit score. It may also signal to lenders that you are in financial distress, which could make it harder to get approved for a new loan.

Do multiple loans affect credit score?

Multiple loans can positively and negatively impact your credit. Each new loan application can result in a hard inquiry on your credit report, which may temporarily lower your score. Having multiple loans can also increase your debt-to-income ratio, which can make you appear less creditworthy to lenders. If you consistently make on-time payments on all of your loans, however, it can positively impact your credit history over time.

What happens if you pay off a loan too quickly?

Paying off a loan early can have mixed effects. While it can save you interest payments, some lenders may charge prepayment penalties, which could offset the benefits of early repayment. When you’re shopping for loans, it’s a good idea to ask if there is an early payoff fee. Some lenders do not charge them.

Paying off a loan early can also have a slightly negative impact on your credit by bringing down your average credit history length and reducing your credit mix.

Paying off a loan early can also have a slightly negative impact on your credit by bringing down your average credit history length and reducing your credit mix.

Is it legal to have multiple personal loans?

There is no federal law against having multiple personal loans. As long as lenders approve you and you handle the debt responsibly, it should not be a problem. However, note that you typically cannot use personal loans for any illegal uses, business purposes, or tuition payments.

Can you be denied a personal loan if you already have one?

Yes, you can be denied a personal loan if you already have one. The lender may have a cap on how much applicants can borrow that you would exceed with a new loan, or your DTI (debt-to-income) ratio may exceed the amount they are comfortable with.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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You may feel proud of yourself for paying off a debt early, but doing so could trigger prepayment fees (ouch). The best way to avoid those charges is to read the fine print before you take out a loan that involves this kind of fee.

If you neglected to do that, however, it doesn’t necessarily mean you’re stuck with a prepayment penalty. Read on to learn ways to avoid paying loan prepayment penalties.

What Is a Prepayment Penalty?

A prepayment penalty is when a lender charges you a fee for paying off your loan before the end of the loan term. It can be frustrating that a lender would charge you for paying off a loan too early. After all, many people may think a lender would appreciate being repaid as quickly as possible.

While that’s true in theory, in reality, it’s not that simple. Lenders make most of their profit from interest, so if you pay off your loan early, the lender is possibly losing out on the interest payments that they were anticipating. Charging a prepayment penalty is one way a lender may recoup their financial loss if you pay off your loan early.

Lenders might calculate the prepayment fee based on the loan’s principal or how much interest remains when you pay off the loan. The penalty could also be a fixed amount as stated in the loan agreement.

Can You Pay Off a Loan Early?

Say you took out a $5,000 personal loan three years ago. You’ve been paying it off for three years, and you have two more years before the loan term ends. Recently you received a financial windfall and you want to use that money to pay off your personal loan early.

Can you pay off a personal loan early without paying a prepayment penalty? It depends on your lender. Some lenders offer personal loans without prepayment penalties, but some don’t. A mortgage prepayment penalty is more common than a personal loan prepayment penalty.

Recommended: When to Consider Paying off Your Mortgage Early

Differences in Prepayment Penalties

The best way to figure out how much a prepayment penalty would be is to check a loan’s terms before you accept them. Lenders have to be upfront about how much the prepayment penalty will be, and they’re required by law to disclose that information before you take on the loan.

Personal Loan Prepayment Penalty

If you take out a $6,000 personal loan to turn your guest room into a pet portrait studio and agree to pay your lender back $125 per month for five years, the term of that loan is five years. Although your loan term says it can’t take you more than five years to pay it off, some lenders also require that you don’t pay it off in less than five years.

The lender makes money off the monthly interest you pay on your loan, and if you pay off your loan early, the lender doesn’t make as much money. Loan prepayment penalties allow the lender to recoup the money they lose when you pay your loan off early.

Mortgage Prepayment Penalty

When it comes to different types of mortgages, things get a little trickier. For loans that originated after 2014, there are restrictions on when a lender can impose prepayment penalties. If you took out a mortgage before 2014, however, you may be subject to a mortgage prepayment penalty. If you’re not sure if your mortgage has a prepayment penalty, check your origination paperwork or call your lender.

Checking for a Prepayment Clause

Lenders disclose whether or not they charge a prepayment penalty in the loan documents. It might be in the fine print, but the prepayment clause is there. If you’re considering paying off any type of loan early, check your loan’s terms and conditions to determine whether or not you’ll have to pay a prepayment penalty.

How Are Prepayment Penalties Calculated?

The cost of a prepayment penalty can vary widely depending on the amount of the loan and how your lender calculates the penalty. Lenders have different ways to determine how much of a prepayment penalty to charge.

If your loan has a prepayment penalty, figuring out exactly what the fee will be can help you determine whether paying the penalty will outweigh the benefits of paying your loan off early. Here are three different ways the prepayment penalty fee might be calculated:

1. Interest costs. If your loan charges a prepayment penalty based on interest, the lender is basing the fee on the interest you would have paid over the full term of the loan. Using the previous example, if you have a $6,000 loan with a five-year term and want to pay the remaining balance of the loan after only four years, the lender may charge you 12 months’ worth of interest as a penalty.

2. Percentage of balance. Some lenders use a percentage of the amount left on the loan to determine the penalty fee. This is a common way to calculate a mortgage prepayment penalty fee. For example, if you bought a house for $500,000 and have already paid down half the mortgage, you might want to pay off the remaining balance in a lump sum before the full term of your loan is up. In this case, your lender might require that you pay a percentage of the remaining $250,000 as a penalty.

3. Flat fee. Some lenders simply have a flat fee as a prepayment penalty. This means that no matter how early you pay back your loan, the amount you’ll have to pay will always be the prepayment penalty amount that’s disclosed in the loan agreement.

Recommended: Debt Payoff Guide

Avoiding a Prepayment Penalty

Trying to avoid prepayment penalties can seem like an exercise in futility, but it is possible. The easiest way to avoid them is to take out a loan or mortgage without prepayment penalties. If that’s not possible, you may still have options.

•   If you already have a personal loan that has a prepayment penalty, and you want to pay your loan off early, talk to your lender. You may be offered an opportunity to pay off your loan closer to the final due date and sidestep the penalty. Or you might find that even if you pay off the loan early and incur a penalty, it might be less than the interest you would have paid over the remaining term of the loan.

•   You can also take a look at your loan origination paperwork to see if it allows for a partial payoff without penalty. If it does, you might be able to prepay a portion of your loan each year, which allows you to get out of debt sooner without requiring you to pay a penalty fee.

For example, some mortgages allow payments of up to 25% of the purchase price once a year, without charging a prepayment penalty. This means that while you might not be able to pay off your full mortgage, you could pay up to 25% of the purchase price each year without triggering a penalty.

Some lenders shift their prepayment penalty terms over the life of your loan. This means that as you get closer to the end of your original loan term, you might face lower prepayment penalty fees or no fees at all. If that’s the case, it might make sense to wait a year or two until the prepayment penalties are less or no longer apply.

When it comes to your money, you don’t want to make any assumptions. You still need to do your due diligence by asking potential lenders if they have a prepayment penalty. The Truth in Lending Act (TILA) requires lenders to provide documentation of any loan fees they charge, including a prepayment penalty. Also, under the TILA, consumers have the right to cancel a loan agreement within three days of closing on the loan without the lender taking any adverse action against them.

The Takeaway

A prepayment penalty is one fee that can be avoided by asking questions of the lender and looking at the loan documents with a discerning eye. This may hold true both when you are shopping for a loan and when you are paying your loan off.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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Starting a residency can be an exciting and rewarding next step in your medical training. But because residencies are spread across the country, there’s a good chance that you’ll not only be starting an intense new job; you will also be moving and getting settled in a brand new town.

Moving can mean major stress on its own, but moving at the very end of medical school can heighten that. After all, medical school graduates typically have almost $250,000 in debt according to the Education Data Initiative, and moving can cost money. Learn about how to finance this important next step here.

Residency Relocation Costs

There’s no way around it: Moving is expensive, and residency relocation costs can add up.

•   There’s the move itself. Even if you’re moving to a new house in the same city to be closer to your work, you may need to hire movers or rent a truck, buy boxes, and get help packing. Plus there are those unexpected moving costs, such as replacing little things like shower curtains and cleaning products that seem to always get lost in the move.

The average cost of moving is $1,710 in 2025, according to Angi, and a long-distance move can cost significantly more. That’s a significant chunk of change.

•   Even if you follow moving tips to economize during the process, guess what? The expense of settling into a new city can be even higher. You will likely need to put down a security deposit if you are renting, as well as possibly update your furniture and equip your new place with essentials like trash cans, towels, and cooking supplies.

•   Another thing to include in your budget: the costs of exploring a new city and eating out while you set up your kitchen. And don’t forget any expenses you may have to incur for your new job, like clothes, or potentially even transportation costs.

Plus the cost of living may be higher than what you are used to. Those little expenses can add up to a major headache if you’re not prepared.

If you’re feeling the pinch, there are a few loans specially designed for medical residents that may be worth considering. They could help make your transition a lot smoother.


💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

Medical Residency Relocation Loans

Here are some options that can help you out financially when you relocate for a residency:

•   One loan new doctors may choose to take out is a medical residency relocation loan. You can take out a residency loan from a private lender — for example, a Sallie Mae Medical Residency and Relocation Loan.

•   Or it could be as simple as taking out a personal loan. Some private lenders may offer student loan-type benefits for loans to be used for medical residency relocation, such as a longer loan payoff term (though you may pay more in interest over the life of the loan if you opt for an extended term).

Residency loans may be specifically geared toward new doctors who are beginning their residencies and need to pay for essentials while settling into a new job and a new city. These loans can allow medical residents to fill the financial gap between graduation and your first residency paycheck.

These personal loans can help new residents cover the cost of moving and getting settled in a new city, including providing for your family while you adjust to a new job. For instance, if you’re making a move for residency and bringing your family along, it is likely that your spouse will also need to look for a job in your new city, which means that they may be giving up a paycheck temporarily as well.

Recommended: How to Qualify for a Personal Loan

Home Loans for Medical Residents

Another aspect of your finances to consider is whether you rent or buy the next place you live. Here are a few important points to consider as you embark on your career.

•   As a medical resident, you might qualify for a home loan designed specifically for doctors. These loans can have some big benefits, like low down payments, no requirement for private mortgage insurance, and no rate increases on jumbo loans. It’s important to do some research to see how you can qualify for these loans.

•   Of course, there are things to consider before buying a home during your residency. Even if you qualify for a home loan for medical residents, you might not be ready to buy a home just yet. This is especially true if you’re moving to a new city or state and you want to settle in, find your favorite neighborhood, and make sure you really like the city before deciding to buy a home.

•   If you do decide to start the home buying process, it’s probably a good idea to check out both traditional mortgages and loans designed specifically for doctors. You won’t know which one is right for you until you compare the benefits of each.

When both partners transition to new jobs at the same time, there can be a significant gap in income. A medical residency relocation loan can help you maintain your lifestyle while you and your spouse acclimate to new jobs.

Getting Ready to Get a Loan

If you’re thinking of getting a loan for relocation costs or to purchase a home, you may want to do some financial housekeeping. Here are a few moves to make:

•   Check your credit score, and see if there may be ways to build it, if necessary. A higher score can earn you the best (meaning lower) interest rates.

•   Determine exactly how much money you may need to borrow. Like all loans, consider only borrowing the amount you actually need to tide you over until your residency starts paying.

You can get a good idea of how much you may need to borrow by taking a look at your monthly expenses and then adding any additional cost-of-living increases based on your new city and the cost of moving. Don’t forget to list one-time expenses like a security deposit for a new apartment.

•   When you’ve figured out how much you want to borrow, take some time to shop around for a loan whose terms work for you. Each lender has different terms and benefits, so make sure to understand them fully before making a decision on if a personal loan is right for you.

Recommended: Can I Take Out a Personal Loan When Unemployed?

The Takeaway

Becoming a doctor can be a challenging and rewarding path. As you embark on your residency, you may find that there are significant relocation and housing expenses. Depending on your situation, you may want to review your loan options to see if there’s a good fit. For instance, a personal loan might allow you to cover the cost of setting yourself up in a new place for your medical residency.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Can you use a personal loan for residency relocation costs?

Yes, a personal loan can be used to finance residency relocation costs like interview expenses, moving, and setting up a new home, and it offers a lump sum with fixed payments. However, it is important to compare personal loans options to find the right rate and terms to suit your unique situation.

What are typical residency relocation costs?

The typical residency relocation costs include moving expenses like hiring movers (which can total in the thousands of dollars), housing costs such as security deposits and first and last month’s rent, and travel expenses. Professional costs like licensing and exams may be covered by these loans, too.

What is a residency relocation loan?

A residency relocation loan is a kind of personal loan that is designed to help finance the cost of interviewing for a residency and then paying moving expenses and the cost of setting up a home in your new town.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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