Personal loans are a convenient way to finance needs that surpass our available resources because they have reasonable interest rates and have a consistent expected monthly installment and a determined payoff date.
It is very easy to find yourself needing more money after you have already taken a personal loan. For example, you might have underestimated the cost of finishing a project shortly after you sign off on another loan. It can also be a medical emergency that is not covered in your medical plan.
Whatever your motives are, you will definitely consider spreading the repayments over time if you can’t afford to cover the emerging expense at once. Getting an additional personal loan with a monthly payment is one way to go about it, and you might have asked yourself if that was even possible.
So, how many personal loans can you have at once? The short answer is as many as you qualify for. Stick around to get a better picture of exactly how this is determined.
What the Law Says About It
There are no federal regulations that prohibit taking out more than one loan. You will not be in breach of any rules or regulations if you do. It is legal to have more than one personal loan approval from the same lender or multiple lending companies. However, you have a higher chance of getting blocked from accessing a subsequent loan by the lending institution than the law.
How Many Personal Loans Can You Have from the Same Lender?
The first place you should go for the second personal loan when you need it is to your current lender. You already have a history, and the appraisal process will be faster. Therefore, it is critical to maintaining an excellent credit book with them so they don’t feel like you are a high-risk customer.
Unfortunately, quite a number of lenders do not allow you to take out a subsequent loan funds while the initial one is still running as they feel it exposes them. They will require that you clear the initial loan first. You need to establish if your lender will allow you to do this. Some lenders will allow you to take out another loan after a certain period of servicing the initial one, presumably to monitor your repayment consistency and establish a pattern.
Most lenders who allow you to take multiple personal loans concurrently have a limit to how many you can take, and they usually cap it at 2 or 3. However, there are others like Wells Fargo who have no limit, and you can take out as many as you can service.
You go back to your current lender not because you cannot get funding from another lender but because the other party has access to your credit history, and they will see you already have a running facility with another organization. This makes them classify you in a higher risk category which will translate to higher interest rates offered. You need to bear this in mind as you shop for alternatives.
How Many Personal Loans Can You Have Overall?
This is a factor of the lender’s risk appetite, your credit score, and your ability to service the facilities. Lets’ take a closer look at the interplay between these variables.
Debt to Income Ratio (DTI)
The more loans you are servicing, the greater the burden on your income. The maximum DTI is usually capped at 43%. The rationale is that you need your income to take care of other commitments besides loan funds repayment. If the loan repayments exceed 43% of your income, you can’t sustain the repayments, and you are likely to default.
The expected payment from your loan application is usually factored in alongside your existing monthly loan payment to determine if you can accommodate the new facility. Exceeding this threshold disqualifies you automatically.
Lending institutions can access your borrowing records, and they use your credit history to determine if you are worth the risk and the level of risk you represent. Having a timely and consistent repayment record boosts your chances of getting another facility. The more loans you have successfully paid, the more trustworthy you seem and the lower your risk rating. Having multiple facilities running at the same time raises your risk rating.
The higher the risk rating, the lower your chances of getting an additional personal loan, and the higher your interest rate, the lender should consider granting the facility. A high-interest rate increases the expected monthly installment, raising the DTI and may indirectly disqualify your loan application.
Number of Running Facilities
The more facilities you have running, the higher your risk profile when you apply for another facility. Your priority when it comes to your repayment term and loan payment will be questioned.
You should know that the lender runs a hard credit check each time you apply for a facility, and a record is kept on your file. Therefore, the subsequent lender will see that a credit check was run, whether or not the facility was granted, and this also affects your rating significantly.
Risk Appetite for Lenders
All these features are assessed individually and then compiled into a credit report with points for each attribute. The higher you score, the more likely you will get a facility. Different lenders interpret the credit scores differently. They all have a bias towards certain features though the underlying principles remain the same.
You will be limited by their take on your overall credit score.
Best Practices for Taking Personal Loans
Now that we have established you can take out as many personal loans as your income can support, you need to know how to make it worthwhile.
While personal loans have multiple benefits, they also come at a cost that influences whether the borrowing will be your avenue to financial freedom or a weight that will anchor you to a lifetime of bad credit. These tips will help in regulating your borrowing habits.
Determine What You Can Afford
The credit system is designed not to approve loans with monthly repayments that will overwhelm you. They usually have a maximum debt to income threshold of 43%. You also have other commitments that may not appear in your statements which you should factor into your monthly expenditures to know exactly what you can afford.
Be Punctual With Your Payments
Loan repayment histories have a significant impact on credit scores. The person who always pays their dues on time will have a better rating than one whose payments are inconsistent, even if they have fewer running loans. Skipping the payments has worse consequences.
Get the Best Deals
Don’t be rushed by the persuasive sales guy or paid advertisement. Consider several offers before settling on one.
Don’t stop at the interest rates for the loan offer. Ask for the APR and see which is the lowest among the available options for your loan offer. Ask about whether they will allow you to take a subsequent personal loan if you need one, if the rates will be the same and whether there is a waiting period before applying for one. Some lenders even have loyalty programs with special rates for repeat customers.
A lower APR makes the debt less of a bargain, so it will cost you less and make servicing the loan easier.