How Many Personal Loans Can You Have at Once?
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Summary:
There is no set limit on how many loans you can have at once. However, most lenders do have limits on how many loans they will offer the same individual, but this differs by lender. Some lenders limit the number of loans you can have while others limit the total amount of money you can borrow.
You took out a personal loan to remodel your house, but suddenly you have some really expensive dental work to pay for. Rather than putting it all on a card and paying outrageous sums in interest, you consider applying for another loan to pay for it.
But can you get another personal loan if you already have one? Can you get one from the same bank? Is your credit history good enough to even qualify for another loan? We’ll explore these issues and more to determine if having multiple loans is the right option for you, as well as some alternatives to a personal loan.
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How many personal loans can you have at once?
There are no hard and fast rules concerning how many personal loans you can have at once. Theoretically, you could have ten — assuming you qualify for each of them and can manage the monthly payments. However, the deciding factor isn’t really if you’re allowed to have several loans at once, but whether you qualify for them.
Can lenders limit the number of loans I take out?
They absolutely can. Lenders decide who they lend to and how much. Some lenders don’t limit the number of loans you can take out, but they do put a cap on how much money they’ll lend you in total. Others allow only one personal loan at a time. You could also have multiple personal loans with more than one bank.
Overall, each lender has different limitations and requirements, so you’ll want to do your research to find out what your options are. As a general rule, lenders who have a long-standing relationship with you (maybe you’ve paid back a couple of loans already) are more likely to approve a second laon.
Is it better to get multiple loans from one lender?
Some lending institutions encourage borrowers to apply for multiple types of loans from one lender. This may include your mortgage and car loan in addition to a personal loan. Is this smarter than getting loans for various lenders?
Not necessarily. Whether you’re getting several loans from one or multiple financial institutions, you still have to qualify for every loan. And with more debt comes more risk for the lender, who may increase interest rates as a result.
Before applying for an additional loan, be sure to do your homework. Maybe it makes sense for you to get multiple loans from one lender, but you may find that you qualify for better rates when you apply to different lenders.
What is the maximum number of loans I can get from one lender?
The maximum number of loans you can have varies by lender, and other circumstances can come into play as well. For example, sometimes you can have two loans from the same lender, but there might be a waiting period between your existing loan and your second loan. Others have a strict one-loan policy.
And then there are many lenders that allow unlimited loans, but they cap the total amount you can borrow, say $50,000. So you might have five personal loans, but their combined total can’t exceed $50,000.
Is getting multiple personal loans a good idea?
It depends. In general, incurring more debt should be avoided unless it’s an investment. However, sometimes life happens and you may have few options available. Getting more than one loan is always risky. You’re taking on more debt and adding to your total monthly bills. That’s not to say there aren’t times when it makes sense to have multiple loans, though.
Example:
Maybe a few years ago you found yourself with a lot of credit card debt, so you took out a debt consolidation loan to pay them off. Smart move, but you’re still paying it off. Now you’ve decided to sell your house, but know you’ll get a better price if you do some remodeling first. So you want to get a second personal loan to finance the renovations.
In these situations, it might make sense to apply for another personal loan. With any luck, you can quickly sell your house and have enough to pay off that second personal loan. It’s an especially good idea to settle that second loan as soon as possible since it likely comes with a higher interest rate than your first loan. Another option is to get a large enough loan to also pay for the first one.
What is loan stacking?
Many people can and do get multiple loans from multiple lenders over a period of time for various reasons. What loan stacking describes is getting multiple loans from multiple lenders at the same time — essentially “stacking” loans one on top of another, rather than spreading them out over time. This can sometimes be a risky practice.
In most cases, a borrower stacks loans because a lender won’t qualify a borrower for the full amount they want, so the borrower seeks out multiple loan sources. Maybe you need $15,000 but the first bank will only approve you for $5,000, so pretty soon you wind up with three different loans of $5,000 each. Not only are you in debt to three institutions, but you also have to make multiple loan payments each month.
This isn’t illegal, but it’s a risky game to play. Depending on your loan terms, you could also be defaulting on one loan as soon as you get another. Some lenders do have specific policies against loan stacking that could put you into legal trouble down the road if you have problems making payments. While loan stacking may get you the capital you think you need, you may actually be doing yourself more harm than good.
How do I qualify for multiple personal loans?
When you apply for a second loan on top of your existing loan, it will be harder to qualify for a second or third loan. Lenders want to know you’re a solid risk before approving your application. The lender will want to assess the following:
- Monthly income. Can you afford to pay additional loans? How much do you have in your bank account month-to-month?
- Credit history, score, and report. Do you have a history of on-time payments? Have you recently gone through a foreclosure or repossession process? Are you shopping around for a loan?
- Debt-to-income ratio (DTI). How much of your income is currently dedicated to loans? Will an additional loan lead to missed payments?
Multiple loans and your debt-to-income ratio
Your DTI is the percentage of your income that is allocated to pay for your debts every month. Personal loan lenders generally don’t want to see less than 40% of your income allocated to debts, but exceptions are sometimes made depending on your overall financial picture. To calculate it, take your total monthly debt payments and divide by your gross monthly income.
It’s important to try and keep your DTI ratio low as possible if you want to qualify for multiple loans. This is not the time to pile on additional credit card debt.
How to boost your approval chances
If you’ve looked at your financial situation and are concerned that you might not qualify for a second personal loan, there are a few things you can do to improve your chances.
- Pay off other debts. Anything you can do to lower your DTI ratio is a huge plus when applying for another loan. If you can pay off a credit card or two, that will really help to boost your credit score.
- Consider a second job. By adding a second job or a side hustle, your income increases, which further lowers your DTI.
- Get a co-signer. If a friend or family member with great credit is willing to co-sign your loan, your odds of being approved increase dramatically. An added bonus is you’ll probably also qualify for a lower interest rate.
- Watch your credit score. By keeping an eye on your credit, you might notice changes to make that will improve your overall credit rating. If you can wait for the loan (maybe a year or so), you will have more time to make those changes. Credit scores can improve pretty quickly if you keep your finances in good shape.
- Do your research. Loan providers vary in their requirements for approval and areas of specialization, so finding the best possible lender for your unique circumstances will up your odds of getting the loan.
To make sure you get the best terms possible, it’s best to review and compare multiple personal loan offers before making your decision.
What are the easiest loans to get approved for?
Unfortunately, the easiest loans to get are payday loans, bad-credit loans, and no-credit-check loans. However, they come with a price — literally. You will pay ridiculously high interest rates and fees if you even qualify for these loans.
Pro Tip
A hard inquiry indicates to a lender that you are shopping around for a loan, which can be a red flag if there are too many of them. In some cases, you can get hard inquiries removed, but it’s rare.
How long should you wait before applying for another loan?
That all depends. If you have a very low DTI and a high credit score, you may not need to wait at all (though this often depends on the lender).
However, before you begin applying for multiple loans at once, consider how multiple applications—and therefore multiple hard credit checks—impact your credit score. A hard inquiry refers to when a lender requests a copy of your credit report as part of the loan application process. Line of credit applications, car loans, mortgages, and personal loans fall into this category. Hard inquiries will lower your score, but it’s only temporary — usually about a year. So, if possible, you may want to put some distance between your first and second personal loans.
What are the downsides to getting another personal loan?
Apart from the obvious downsides of having multiple personal loans, there are a number of other considerations to take into account when looking into multiple loans.
- Credit score. Your credit score is one of the main things a lender will assess before qualifying you for a loan. And every time a hard inquiry is made on your credit, it causes a temporary dip in your credit score. The more inquiries you have, the more your score drops.
- Interest rates. The more loans you have, the greater risk you appear to lenders. Because your credit score dropped and your DTI rose, lenders will tack on a higher interest rate. This will increase your monthly payments and/or the life of the loan.
- Debt-to-income ratio. As you take on more than one loan, your DTI ratio will increase, which can negatively affect your credit rating. This may make your overall financial health appear less stable to lenders, causing them to deny your application.
- Debt cycle. Taking out your first loan to get through a rough patch is one thing. But if you find yourself needing more loans just to get by, you could wind up in a vicious debt cycle that can be difficult to escape. Not to mention the very real stress of trying to manage multiple personal loans.
Pro Tip
Anything you can do to lower your DTI is a huge plus when applying for a second personal loan. If you can pay off a credit card or two, that can really help to boost your credit score.
Alternatives to multiple personal loans
Sometimes it doesn’t make sense to burden yourself with more loans. Or maybe your credit isn’t good enough to qualify right now. Instead, you might want to consider one of the following options.
Payment plans or layaway
Several large institutions offer payment plans for more expensive items or services, all of which can be done without the hassle of loan applications. Some medical professionals and even online stores offer no-interest payment plans, and layaways can often be used to buy expensive furniture or appliances.
Save for it
This is truly the old-fashioned way, and it makes a lot of sense. If you’re not planning to sell your house anytime soon, you probably don’t need to redo your kitchen this month. Think about making some inexpensive cosmetic changes now and save up for the big stuff later.
Credit card promotions
Many stores and credit card companies have introductory offers with a 0% financing rate for up to one year or longer. With no interest and a reasonable amount of time to pay off the card, you can make larger purchases without the fear of high interest rates. Just make sure to do it in the introductory period, because interest rates will be steep after that.
Home equity loan
If you have a decent amount of equity in your home (ideally at least 20%), you might qualify for a home equity loan or home equity line of credit (HELOC). This option will typically offer lower interest rates than personal loans, and you can deduct the interest on your taxes.
Credit card cash advance
This should be a last resort option only. Because you’re drawing money against your credit card, the interest rates are ridiculously high and may come with other fees. However, this is a quicker alternative in emergency situations than waiting for the loan application process to finish.
Key Takeaways
- There is no law limiting the number of personal loans you can take out.
- As you accumulate more debt, it can be difficult to qualify for additional personal loans.
- It’s important to keep your debt-to-income ratio as low as possible.
- Keep an eye on your credit rating to assess ways to improve your score.
- Different lenders have different options — do your homework before applying.
Your ideal personal loan lender
Personal loans can be a great source of funds when you need them, but it’s important not to rely on them too heavily. Because more loans mean more risk, it’s smart to be strategic when applying for new loans.
Whether you’re applying for your first, second, or even third personal loan, it’s important to shop around and see which lender offers the best rates and terms.
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