Why people turn to multiple loans
Sometimes, even one lender may not sanction the sum of money you need. Under such circumstances, multiple banks or NBFCs are approached by the borrowers to finance the deficit. This mechanism can provide instant access to higher sums for unexpected expenditure, high-value investments, or to pay off debts. It is not free, especially the repayment aspect.
Impact on your credit history
Taking loans from different lenders means higher monthly EMIs and higher repayment burden. Each loan you take is tracked by credit bureaus, and having too many active accounts makes you appear credit-hungry. This could negatively affect your credit score, especially when your repayment history deteriorates at any point in time.
Higher debt-to-income ratio
Your debt-to-income (DTI) ratio is calculated by lenders before approving new credit. If you have used too much of your income for EMIs, the chances of getting new loans — like a house or car loan — are significantly reduced. A high DTI ratio also shows possible pressure even if you are making timely payments.
Repayment coordination issues
It is tough to maintain different EMIs that have different due dates. Missing even one of them will harm your credit score and invite penalty. Prepayment or foreclosure is also tougher when loans are spread across financiers with different charges and terms.
Weighing the costs and benefits
While the process of obtaining multiple loans may seem to be a panacea, they also come with a greater aggregate interest outflow. Instead of borrowing money from different lenders, choices such as top-up loan, balance transfer, or even secured credit like gold loan or loans against FD may be more cost-effective and easier.
FAQs
1. Can I take personal loans from two different banks at the same time?
Yes, you can, if you qualify. But lenders will verify your repayment capacity and credit history before sanctioning the amount.
2. Will having a series of personal loans decrease my credit score?
Not necessarily. Your score will only decline if the repayments are uneven or your loans are getting too big. However, applying for too many loans in a short time span may make you high-risk for lenders.
3. What is a more secure alternative to having multiple personal loans?
Top-up loans against an outstanding personal loan or loans secured over assets are often cheaper and easier to maintain than paying for multiple personal loans simultaneously.
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