Personal loans are one the most flexible types of loans. The money can be used for anything from emergency expenses to home renovations. But if you already have one, you may be wondering if you can take out another.
The short answer is yes, you can take out more than one personal loan. In this article, we’ll cover what the cap is on personal loans, the pros and cons of taking out multiple loans and some alternative options for you to consider.
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How Many Personal Loans Can You Have?
There’s no formal limit to the number of personal loans you can have. Each loan will be assessed by your lender individually when they decide whether or not to issue it. But, each loan you take out will impact your chances of getting approved for the next one.
Personal loans fall under the category of installment loans (also known as installment credit). That means a lender issues you a lump sum of money and you repay it in monthly installments.
When a lender reviews your loan application, their decision on whether or not to issue you the loan is primarily based on how likely they think you are to pay it back. Taking out a personal loan means taking on debt, so the more personal loans you have, the more debt you have to repay.
In other words, the more personal loans you already have, the less likely a lender is to approve a new one because of the debt you already have. We’ll go over the requirements in more detail later on.
Can you get another loan from the same lender?
Sometimes. Even though there aren’t formal limits set by the government on how many loans a borrower can take out, lenders are free to set their own limits. Some lenders will only issue one personal loan while others will issue as many as they think a borrower can qualify for.
Even if a lender will only issue one personal loan at a time, you’re still free to try to get another loan from a different lender or to refinance the loan with a new lender.
Should You Take Out More Than One Personal Loan?
As with most things, there are benefits and drawbacks to taking out multiple personal loans. Here are some of the most important ones to consider.
PROS of multiple personal loans👍
Personal loans typically range from around $2,000 to $45,000. Taking on multiple loans will give you access to more capital, allowing you to spend more on what you need.
Personal loans can be used for almost anything. Having multiple loans can allow you to spend the funds on a wide variety of expenses, from unexpected medical bills to moving expenses or home improvement. You can also match up different loans to different expense buckets.
If you manage your payments and pay back the loans in full and on time, you can actually help your credit score in the long run by proving yourself to be a reliable borrower.
CONS of multiple personal loans👎
Personal loans usually have higher interest rates than other types of loans like mortgages. When you take on multiple personal loans, you’re paying more in interest over multiple loans.
Taking out a personal loan means taking out debt. Taking out more than one translates into even more debt, which can be a serious financial burden.
Taking out another personal loan means another payment you’re responsible for. If you struggle with your finances, you could also potentially jeopardize your ability to pay back the first loan you took out.
If you are unable to make on-time and in-full payments, your credit score will be damaged. This damage can be even greater if you fail to make payments on multiple loans.
Qualifying for Multiple Personal Loans
If a lender is willing to issue you more than one personal loan, they will assess your application based on the factors outlined below.
Debt-to-income ratio
Your debt-to-income (DTI) ratio is one of the most important factors when a lender analyzes your loan application. It’s especially important when you’re applying for a second or third personal loan. DTI requirements vary from lender to lender, but a DTI of 40% or lower is a good target when applying.
The debts from the loans you already have will be counted here. They will also be compared to your income. You may earn enough that you still have a low DTI ratio. But as you take out more in personal loans, your debt will increase, thus increasing how much income you need to have a satisfactory DTI ratio in the eyes of a lender.
Credit history
Your credit score will also play a large role in whether or not you qualify for an additional personal loan. A history of making on-time and in-full payments on the personal loan you already have could benefit your score and will indicate to the lender that you’re responsible with your debt.
Conversely, if you’re struggling to make payments on the loan you already have it will likely affect your credit score. This will be a sign to the lender that you’re unlikely to be able to manage more debt and significantly reduce your odds of securing another loan.
Collateral
Most personal loans are unsecured loans, meaning they don’t require collateral. However, it is possible to apply for a secured loan and put up collateral.
A lender will consider the collateral you put up for a secured personal loan and it could very well make a difference in whether or not they approve your application depending on the nature and value of the asset.
Alternatives To Taking Out Multiple Personal Loans
Taking out an additional personal loan isn’t the only way to get access to more money. Here are some alternative methods to consider before committing to multiple personal loans.
- Credit cards: Balance transfer credit cards can be a good way to make payments, and many even offer 0% intro annual percentage rate (APR) periods.
- Refinancing an existing personal loan: People usually choose to refinance in order to obtain a better interest rate, but it’s also possible to extend your repayment terms and borrow more money.
- Home equity loan or home equity line of credit (HELOC): The mechanics of these loans are different, but both home equity loans and HELOCs allow you to borrow against the equity you’ve built up in your home.
- 401(k) loan: There are disadvantages to borrowing against your 401(k), but if your employer allows it, it can be an effective way to access more capital. And, when you pay back the loan, you are paying the interest back to yourself.
Final Thoughts On How Many Personal Loans You Can Have
Before taking out any personal loan, you should be absolutely sure you can afford the monthly payments and pay it back. When considering multiple loans, this becomes even more important. If you mismanage your finances, you could end up missing payments on multiple loans, compounding the damage to your credit.
The limits on the number of loans a lender will issue an individual serve not just to protect them but also to protect the borrower. If you need more cash, don’t overlook alternative options, like refinancing.
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The Short Version
- When your life needs financing, a personal loan (or two or three) can be a quick source of low-interest cash that can fund the expected – and the unexpected
- A second personal loan might make sense if it’s used for business, taxable investments or qualified higher education expenses
- Some lenders require you to wait 6 months before applying for a second loan, and others may require you to wait even longer
