If you're paying off a personal loan and you don't have a strong emergency fund, you may be contemplating taking out a second loan to stay on top of your finances or fund another large purchase.
Taking on more debt on top of your existing loan may seem like the solution, but can you have multiple personal loans at once? And if so, how many can you have?
Some people have multiple personal loans simultaneously, and others manage several different lines of credit at once. It’s possible to have a mortgage, personal loan, credit card and car loan simultaneously.
There's no set limit to the number of personal loans you can have at once, but this doesn't mean it's easy to access more than one loan or multiple lines of credit.
It may be easier to take out more than one line of credit if you spread out each application.
For example, it’s completely natural to apply for a mortgage a few months before taking out a personal loan or credit card.
But lenders' alarm bells may ring if you ask to borrow money multiple times within a short period of time. This could signal to them that you're a high-risk borrower who will struggle to pay them back.
The short answer is yes. It is possible to take out multiple personal loans with the same lender.
However, it's extremely rare that lenders will allow you to take out a second loan alongside the first.
They'll usually insist that you pay off the first personal loan before applying for the second.
Instead of borrowing more money from a lender you've already borrowed from, you could potentially get a personal loan from multiple banks, building societies or online lenders.
There's a lot to consider before you take out another personal loan with a different lender.
When you apply for a new personal loan, the lender will look at your credit report to determine what kind of borrower you are.
If you have a good credit score and you've handled previous and current debts responsibly, you may find it easier to take out another personal loan. If, however, you've struggled with debt and your credit score has been affected, your application may be rejected.
Some lenders may still approve your application despite a low credit score, but they might charge you a higher interest rate.
You might also be rejected if lenders look at your income and outgoings and believe you're taking on too much debt at once. If your debt to income ratio is quite high, lenders may consider additional debt unaffordable and they may worry about your ability to pay it back.
This could be the case even if your credit score is good and you've managed all previous debts responsibly.
Although it's possible to have multiple personal loans at once, taking on several lines of credit at the same time can make the debts harder to manage.
Here are a few things to think about before taking out multiple loans:
In most cases, every time you apply for a loan, a 'hard' search will be added to your credit report. This will negatively impact your credit score and be visible to future lenders whenever you apply for more credit.
If you manage your debts responsibly and don't miss any payments, your credit score will recover over time. But too many credit applications in a short space of time could lead to rejections.
If you apply for multiple loans and your applications are accepted, you'll need to factor your repayments into your budget.
Managing more than one line of credit at once can be challenging.
If you miss a payment, this could impact your credit score and make your debt more expensive.
With debt repayments making up a larger portion of your income, you'll have less money to spend on essential living costs such as rent/mortgage payments and bills. You'll also have less money for the things you enjoy.
Not only could this force you to apply for even more debt to stay on top of your responsibilities, it could impact your day-to-day life too.
Instead of applying for more personal loans or other lines of credit, try to focus on lowering your expenses and managing your budget. Over time, you might find it easier to save and invest for the future too.
If you've decided to apply for another loan, here are a couple of tips to protect yourself:
Lenders have a responsibility to carry out affordability checks and ensure they're lending money responsibly, but sometimes people are given loans they later struggle to afford.
Be honest with yourself about how much you can repay and think twice about taking out a second personal loan if you think you may overstretch yourself.
If you've done the maths and you can afford to make repayments on an additional loan, compare multiple loans and lines of credit before making an application.
The last thing you need is to submit a loan application only to find another loan with better terms or a lower APR a few weeks later.
Applying for a bigger (yet still affordable) loan in the first place could help you avoid having to apply for additional lines of credit in the near future and help you avoid juggling more unnecessary debts.
If you already have a high debt to income ratio, here are a few tips to help you manage several loans at the same time.
If you have multiple loans, make sure you have a realistic repayment plan in place. This will help you to avoid late payments, reduce the amount you spend on interest or fees, and protect your credit score.
When you have many personal loans with different lenders, it can be hard to remember how much money is due and by which dates.
Setting up automatic payments can be one of the quickest and most effective ways of staying on top of your debts. By automating your payments, you won't have to put too much thought into it and you'll be able to focus on work and your personal life.
If setting up automatic payments doesn't work for you, setting calendar alerts a few days before each payment deadline could help you avoid costly mistakes.