Key learning points
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It is possible to have multi-payment loans as long as you have the income and credit score to qualify.
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While multiple loans can be helpful to cover large expenses, it can also negatively impact your credit score and finances.
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Consider alternatives to multiple loans, such as credit cards or building savings, before taking on additional debt.
It is possible to borrow multiple installment loans, largely because an installment loan is a closed-end debt product that can buy almost anything. Mortgages, car loans and personal loans are all types of installment loans.
There is no hard and fast rule about how many installment loans you can have at a time. As long as you have the income, credit score and debt-to-income ratio (DTI) that a lender requires, you won’t be charged an installment loan from another lender. That said, it can be difficult to borrow a second loan from the same lender while you’re still paying off the first.
How many loans can you have with the same lender?
Each lender has its own policy. Some may not allow you to borrow a second loan, while others may offer it – with caveats. Here are a few options offered by lenders:
| Lender | Maximum number of loans | Loan amount |
|---|---|---|
| Best egg | 2 | $50,000 |
| Credit Club | Total loan amount up to $50,000 | $40,000 |
| Lending point | 2 | $36,500 |
| Bloom | 2 | $50,000 |
| SoFi | 2 | $100,000 |
| Upgrade | No limit stated | $50,000 |
| Upstart | 2 | $50,000 |
What are the risks of having multiple personal loans?
While you may be able to qualify for a second or third personal loan, your credit score and finances could take a hit if you don’t consider the risks before applying.
- Lower the credit score. When you apply for a loan, you may see a drop in your credit score. This is because most lenders will run a hard credit check, which will lower your score by a few points. And if you have loans on multiple installments, your credit utilization will increase, which can also have a negative effect on your credit.
- Increase the DTI ratio. Multiple personal loans obviously increase your DTI ratio. Unless you can offset the payments with more income, your DTI will increase. This isn’t a problem if your DTI is already low, but it can make it difficult to qualify for good rates in the future.
- Possibly higher interest. If you already have other debts, such as a car loan, mortgage or credit cards, you may receive a higher interest rate. This is because you already have a higher DTI than most lenders prefer, which typically results in subprime rates.
- Extra pressure on your budget. A new monthly payment can make it harder to cover invisible expenses – or simply build your savings. Think carefully about whether a new personal loan is needed and how the payment will change your expenses.
What are the advantages of multiple personal loans?
Multiple personal loans can be a useful tool if you can handle the payments. You may benefit from another loan if you are still paying off a previous loan but need a few thousand dollars to pay off a bill or a major purchase.
The main advantage of multiple personal loans is the ability to cover major expenses. If you have already taken out a personal loan and spent the full amount, a second personal loan may be needed to cover another expense. The same goes for a third or fourth.
Because each loan can be used to pay for something else, multiple personal loans allow you to keep track of the monthly payment amount and the total interest paid to each lender for each expense. And if you’re able to, consider consolidating some debt – at a lower average rate – to simplify payments and potentially pay less.
Learn more: How to compare installment lenders
Qualify for a new personal loan
When you apply for a personal loan again, a lender will take into account the same factors as when you applied the first time. Below are some typical eligibility requirements:
- Creditworthiness. You need a good credit score (usually defined as a FICO score of 670 or higher) to qualify for a lender’s lowest advertised rates. Some lenders may approve you with bad credit, but your loan will likely be more expensive.
- Income. Most lenders require a certain income to qualify. When you apply, you will usually need to provide proof of income by uploading certain documents, such as your bank statements or pay slips.
- DTI ratio. Your DTI ratio compares your monthly debt to your monthly gross income. A high DTI ratio can indicate to a lender that you may be financially overextended. On the other hand, a low DTI ratio usually leads to higher approval chances.
Are there alternatives to having multi-payment loans?
Even if you can handle the extra monthly payments that a personal loan entails, it may not be the best solution. Depending on the costs, you may be better off with an alternative, such as a credit card, a line of credit, or simply building up your savings.
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Credit cards are a good option to handle smaller expenses in addition to everyday purchases. A credit card (especially one that offers travel rewards or cash back) can help you cover expenses under $1,000. Most personal loans require you to borrow at least $1,000 to qualify.
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Lines of credit are similar to credit cards. You have a credit limit, pay interest on what you borrow and have access to the money again after repayment. These are best for larger expenses that aren’t set in stone, such as home renovations. They offer the same large amount as a personal loan without the strict monthly payment structure.
- Savings will ultimately be your best choice if you want to reduce overall costs. While building savings for major expenses will take longer, you pay no interest. In fact one savings account with high returns or certificate of deposit (CD) will generate interest over time.
it comes down to
It is possible to have multiple installment loans – but it is not always the best choice. Your income, credit score, other debts, and current lenders all affect your ability to borrow. If you decide to borrow another personal loan, compare current interest rates for installment loans to get the most out of your next loan.
