If you already borrowed a personal loan but need additional funding, you may be wondering if you can take out an additional personal loan. The short answer is yes — there’s no concrete rule prohibiting you from borrowing multiple personal loans at once.
However, you might need to shop around, since some individual lenders set restrictions on how many loans you can borrow from them at the same time. Plus, it may be tough to get approved for additional financing if you already owe a lot of debt on your current loan.
Here’s a closer look at the guidelines around personal loans so you can decide whether taking out more than one makes sense for you.
How Many Personal Loans Can I Have?
There’s no general limit to how many personal loans you can take out. However, there may be restrictions around how many loans you can request or the amount you can borrow from the same lender.
If your current lender limits how many personal loans you can take out, you could still borrow another loan through a different lender. You’d need to get approved for that additional personal loan, though, which may be challenging if you already owe money.
Approval rests on a variety of factors, including your income, credit score, and debt-to-income (DTI) ratio. If you already owe on another personal loan, your DTI — which compares your monthly debt payments with your gross income — could be high.
Lenders generally want to see a DTI lower than 36% to ensure you’re not overextending your finances. If your DTI isn’t maxed out and you meet other qualification requirements, you may get approved for an additional personal loan.
[CALCULATE: Use Our Free Personal Loan Calculator to Estimate Your Monthly Payments.]
Can You Have More Than One Personal Loan?
You can have more than one personal loan if you meet a lender’s criteria for loan approval. Perhaps you already borrowed a personal loan to consolidate high-interest debt, and now you’re looking to borrow another one to pay for a home renovation.
In this case, you could apply for an additional personal loan to cover expenses, either with your current lender (if you meet requirements) or a new one. However, make sure to review your budget before you borrow so you don’t end up with an overwhelming amount of debt.
“It’s paramount the borrower has a plan to repay,” says Daniel Cieniewicz, certified financial planner at Pennsylvania-based Hyperion Financial. “If personal loans and debt continue to build, … it can create undue stress on a financial plan.”
[Read: Best Personal Loans.]
How Many Loans Can You Have From the Same Lender?
While it’s possible to take out more than one personal loan at the same time, you may need to apply with multiple lenders. As mentioned, some lenders set restrictions on how many loans you can take out at once.
Online lenders like Avant and Rocket Loans, for example, only allow one loan to be taken out at any given time. Whereas SoFi and Prosper allow you to borrow up to two loans at once. Other lenders, like LendingClub, don’t set a limit on how many you can borrow.
Even if a lender does allow you to take out more than one loan, it may not let you borrow more than a certain aggregate amount. SoFi and Lightstream, for instance, let you borrow up to $100,000 in personal loans, while Prosper sets a lower limit at $50,000.
Some lenders also ask you to wait a certain number of months or make a specific number of consecutive payments on your current loan before you’re eligible to apply for another one. Check with your specific lender to find out its rules around borrowing multiple personal loans.
Is It a Good Idea to Have Multiple Personal Loans?
Borrowing multiple personal loans can make sense if you can afford repayment. You can use a personal loan for almost any purpose and pay it back over several years, usually at a fixed interest rate. A personal loan can also be a useful tool for consolidating high-interest debt if you qualify for a competitive rate.
However, there are risks to borrowing more than one loan at the same time, such as:
— Your debt-to-income ratio will increase. By taking on another loan with monthly payments, your DTI will go up. This could stretch your budget, and may also make it difficult to get approved for additional forms of financing, such as a mortgage or a private student loan.
— You might end up in too much debt. Juggling multiple loans can put stress on your finances. If you can’t afford payments, you could miss bills and damage your credit score. You could also be in a vulnerable position if you lose your job or experience another financial setback.
— You could receive a higher interest rate on your second loan. You may not be a strong candidate for a second personal loan if your credit score has decreased and your DTI has increased since the first time you applied. A high rate may mean unaffordable monthly payments and a higher cost of borrowing.
“While you can have multiple loans at once, it is important to consider your financial capacity and impact on your credit score and cash flow,” says Jamie Hopkins, certified financial planner and director of private wealth management at Bryn Mawr Trust.
[Read: Best Debt Consolidation Loans.]
How Do Multiple Personal Loans Affect Your Credit?
The impact of multiple personal loans on your credit depends on many factors. Initially, taking out the loans can cause your score to drop by a few points.
“Whenever a loan is applied for, a credit inquiry follows, which can cause a temporary hit of a consumer’s FICO score,” says Cieniewicz.
However, your score should bounce back if you make on-time payments on your loans. And regular payments on your installment loans can improve your credit score over time.
On the flip side, making late payments or missing them completely can damage your score. In fact, missed payments can stay on your credit report for seven years.
“Having too many personal loans might make it difficult to repay and in some cases, adversely affect a borrower’s personal credit history,” says Barry Coleman, vice president of program management and education at the National Foundation for Credit Counseling.
What Are Some Alternatives to Personal Loans?
Before taking out another personal loan, it’s worth comparing your options to find the least expensive form of financing. Here are some alternatives to consider:
— Savings. Making use of your own savings would be the most affordable option, since you wouldn’t have to pay interest charges or fees. Consider whether you can delay your purchase until you’ve reached your savings goal.
— Home equity loan or line of credit. Homeowners can tap into their home equity with a home equity loan or a home equity line of credit (HELOC). This type of financing can have competitive interest rates, but keep in mind that it’s secured by your home. If you can’t afford to pay back your loan or HELOC, you risk losing your home to foreclosure.
— 0% APR credit card. If you have good credit, you might qualify for a credit card with a 0% APR promotional period that could span 12 months or longer. If you can pay off your balance within that time frame, you’ll avoid paying interest on the amount.
— Buy now, pay later (BNPL). If you’re looking to finance a big-ticket item, a BNPL service like Affirm or Klarna could help you spread out the cost over time. You can often choose between a six-week payment plan with 0% interest or a longer repayment plan with interest charges.
— Cash advance app. There are various apps, such as Dave, Earnin and MoneyLion, that offer cash advances you can pay back with your next paycheck. Maximum amounts typically reach $500.
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Can I Have Two Personal Loans at the Same Time? originally appeared on usnews.com
