Can you take out a second personal loan?
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If you take out a personal loan and realized later that you needed more money, you may wonder if it is possible to get another loan. Some lenders will approve you for a second personal loan but others might not.
If you’re considering this option, carefully analyze your finances to determine if you can afford to carry additional debt and make timely payments. You should also understand the potential negative consequences to your credit score and overall financial health from taking out a second personal loan and becoming overextended.
Can I have two personal loans at the same time?
The ability to take out multiple personal loans depends on the lender. Many big online lenders have explicit policies about borrowers applying for multiple personal loans. Some lenders require you to make a specific number of consecutive payments or wait until a certain amount of time has passed since you took out the initial loan. Furthermore, the total amount you can borrow from each lender is generally capped at a certain amount.
LendingClub, for example, says that borrowers can have two loans from the lender simultaneously. To qualify for a second loan, the combined maximum outstanding loan amount cannot exceed $50,000.
Prosper borrowers must wait six months after receiving their first loan and make six consecutive on-time payments before applying for a second loan. There is also a combined maximum balance of $40,000.
Meanwhile, online lender SoFi says that you can apply for a second personal loan only if you have made your last three consecutive payments on time. However, Michigan residents are prohibited from having more than one SoFi Personal Loan at a time.
Below is a table that outlines the number of loans allowed by some of the top lenders:
|Lender||Maximum number of loans|
Things to consider before getting another loan
The benefits of taking out a second personal loan depend entirely on the circumstances. You should never take on more debt than needed. However, even the best financial planners can’t always predict life events that impact your finances. Before taking on your second personal loan, consider the following drawbacks.
You risk falling into a debt cycle
Be careful of falling victim to a debt cycle where you perpetually take out additional personal loans and dig yourself into a financial hole. This can be one drawback of getting another loan.
If you frequently take out new personal loans and max out credit cards, it might be time to examine your finances. Look at your monthly income and expenses and decide if there are fundamental changes you could make that would put you in a better financial situation.
Your credit score will be affected
Another major downside to taking out multiple loans is their effect on your credit score. Inquiries on your credit report usually cause a small drop in your credit score. This drop might not appear immediately, but it will appear soon after you officially apply for the loan. If you get approved for a second personal loan, expect another inquiry.
Your debt-to-income ratio will increase
As the name suggests, your debt-to-income (DTI) ratio is the percentage of your monthly income that’s used to cover outstanding debt obligations. Lenders and creditors use this figure to determine how much debt you can afford to carry before the risk of default becomes too high. A second personal loan will increase this number, and if you already had a high DTI before applying, you could be rejected for other credit cards and loan products in the future.
You will need to wait to access other financing
Too many credit applications or recently opened accounts in a short period is another red flag for lenders. So, taking out a second personal loan could mean you’ll need to wait to access other forms of financing.
Qualifying for another personal loan
To qualify for another personal loan, you must meet a lender’s eligibility requirements, which typically include the following factors.
- Debt-to-income DTI ratio. DTI measures your gross monthly income against your monthly debt, expressed as a percentage. For example, if your monthly income is $4,000 and your monthly debt is $1,000, your DTI is 25%. The lower your DTI, the better your approval odds.
- Income. Lenders usually require you to provide financial documents to prove you have enough income to repay the loan.
- Credit. You’ll need an excellent credit score to qualify for a lender’s best rates. It’s possible to get approved for a personal loan with bad credit; however, a lender will likely charge you a higher interest rate to compensate for the increased risk.
- Collateral. If you’re applying for a secured personal loan, you’ll need to attach an asset like a bank account or car title a lender can take if you can’t repay the loan as promised.
Does it make sense to have multiple personal loans?
Even if you think you’re eligible for multiple loans, you should think twice before applying. A second personal loan could indicate that your finances aren’t in good shape.
Using a personal loan to consolidate and pay off credit card debt could be a good thing. However, if you rack up credit card bills a second time, enough to warrant a second personal loan, the problem could lie with your spending habits or budget.
How to manage multiple personal loans
Defaults and late payments on personal loans affect your credit more than defaults and delinquencies on credit cards. So if you are in a situation where you have to make tough choices about which bills to pay, prioritize the payments on your personal loans first.
Another thing that you’ll want to do to manage multiple personal loans is to identify which loan you could funnel extra payments into. This could be the loan with the smallest principal amount of the loan with the highest interest rate. If you pay off that loan early, you will save money in interest and can use the monthly amount you were paying on the loan and channel it toward your other debts or into an emergency fund.
Alternatives to another personal loan
Before taking out a second personal loan, consider these alternatives:
- Dedicated savings account: If the expense you are considering can be delayed, you may be better off by avoiding another personal loan and saving up the money to pay for it instead.
- Debt consolidation loan: Instead of taking out multiple personal loans, you may consider wrapping your existing loan and any additional credit card debt into a single debt consolidation loan.
- Balance transfer credit card: You may be eligible for a balance transfer on a new or existing credit card. Many credit cards offer an introductory period with a 0 percent APR on new purchases and/or transfers, so you can begin paying off debt without additional interest costs.
- Payment plan: If you are considering a second personal loan to pay a large medical bill, check with your provider to see if it offers a payment plan.
The bottom line
How many personal loans can you have? While it’s certainly possible to open more than one loan at a time, it is unwise to have two unless the borrower is in a dire financial situation where the benefits outweigh the risks.