Can you take out a second personal loan?

If you take out a personal loan and later realize that you need more money, you may wonder whether it is possible to take out another loan. Some lenders will approve you for a second personal loan, but others may not.

If you are considering this option, carefully analyze your finances to determine whether you can afford to take on additional debt and make timely payments. You should also understand the potential negative impact on your credit score and overall financial health if you take out a second personal loan and become overextended.

Can I take out two personal loans at the same time?

The ability to take out multiple personal loans depends on the lender. Many major online lenders have explicit policies about borrowers applying for multiple personal loans. Some lenders require you to make a certain number of consecutive payments or wait until a certain amount of time has passed since you took out the original loan. Additionally, the total amount you can borrow from each lender is typically limited to a certain amount.

For example, LendingClub says borrowers can have two loans with the lender at the same time. The combined maximum outstanding loan amount cannot exceed $50,000 to qualify for a second loan.

Prosper and Upstart 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 $50,000.

Meanwhile, online lender SoFi says you can only apply for a second personal loan if you’ve made your last three consecutive payments on time. However, Michigan residents are not allowed to have more than one personal SoFi loan at a time.

Best egg is another online lender that allows you to take out two personal loans at once, but the total balance is limited to $100,000. The first loan must also be in good standing to qualify for additional financing.

Below is a table showing the number of loans allowed by some of the top lenders:

Things to consider before getting a new loan

The benefits of taking out a second personal loan depend entirely on the circumstances. You should never take on more debt than necessary. However, even the best financial planners can’t always predict life events that will affect your finances. Consider the following disadvantages before taking out your second personal loan.

You run the risk of falling into a cycle of debt

Be careful not to fall victim to a debt cycle where you continually take out additional personal loans and dig yourself into a financial hole. This can be a disadvantage of getting a new loan.

If you’re regularly taking out new personal loans and maxing out credit cards, it might be time to take a closer look at your finances. Look at your monthly income and expenses and decide if you can make fundamental changes that would put you in a better financial position.

Your credit score will be affected

Another major disadvantage of taking out multiple loans is their effect on your credit score. Questions on your credit report usually cause a small drop in your credit score. This drop may not appear immediately, but it will appear shortly after you officially apply for the loan. If you get approved for a second personal loan, you can expect to be investigated again.

Your debt-to-income ratio will increase

As the name suggests, your debt-to-income ratio (DTI) is the percentage of your monthly income used to cover outstanding debt obligations. Lenders and creditors use this figure to determine how much debt you can 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 you applied, you may be rejected for other credit cards and loan products in the future.

You will have to wait to access other financing

Too many loan applications or recently opened accounts in a short period of time are another red flag for lenders. So taking out a second personal loan may mean you have to wait before accessing other forms of financing.

Qualify for a new 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 chances of approval.
• Income. Lenders typically require that you provide financial documents to prove that you have sufficient income to repay the loan.
• Credit. You need an excellent credit score to qualify for the best rates from a lender. It is 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.
• Security. Applying for a secured personal loan will require you to seize assets such as a bank account or car title that a lender can use if you can’t repay the loan as promised.

Does it make sense to take out multiple personal loans?

Even if you think you qualify for multiple loans, think twice before applying. A second personal loan may indicate that your finances are not in good shape.

It can be good to use a personal loan to consolidate and pay off credit card debt. However, if you’re receiving credit card bills for a second time, enough to warrant a second personal loan, the problem may be related to your spending habits or budget.

How to manage multiple personal loans

Defaults and delinquencies on personal loans affect your credit more than defaults and delinquencies on credit cards. So if you find yourself in a situation where you have to make tough choices about which bills to pay, prioritize your personal loan payments first.

Another thing you’ll want to do to manage multiple personal loans is determine which loan you can make additional payments to. This may be the loan with the smallest principal and the highest interest. Paying off that loan early will save you interest and allow you to use the monthly amount you paid for the loan toward your other debts or into an emergency fund.

Alternatives to another personal loan

Before taking out a second personal loan, consider these alternatives:

• Special savings account: If the expense you’re considering can be deferred, you might be better off avoiding another personal loan and saving the money to pay for it.
• Debt consolidation loan: Instead of taking out multiple personal loans, consider bundling your existing loan and any additional credit card debt into a single debt consolidation loan.
• Credit card balance transfer: 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 balance transfers, so you can start paying off debt without additional interest charges.
• Payment plan: If you’re considering a second personal loan to pay for a large medical bill, check with your provider to see if they offer a payment plan.

it comes down to

How many personal loans can you have? While it is certainly possible to open more than one loan at a time, it is unwise to have two unless the borrower is in a difficult financial situation where the benefits outweigh the risks.