How the multiple personal loans concept works It is common for people to think that once they have secured a personal loan, they cannot get another until they have repaid the existing one. This is not the case because lenders allow individuals to take out multiple personal loans simultaneously provided that they meet the requirements. This comes in handy when you have several different financial needs—be it hospital bills, home renovation, or bill consolidation—whom one loan cannot pay. It is reasonable. It is all about wise borrowing and repayment.
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Lender standards and approval considerations Approval of an additional personal loan is strongly dependent on how creditworthy you are, your payment history, and debt-to-income ratio. The lenders will verify your income to confirm if you can afford the extra EMI burden along with regular commitments. They will also take into account the credit score—generally, the least credit score that can qualify you is more than 750. If you have a perfect repayment history, then the lenders can even offer pre-approved loans so that you can advance the process.
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Impact on your credit history Although you can have multiple personal loans, this has a direct influence on your credit profile. With every loan application, there is a hard inquiry, and your credit score will decrease marginally. Aside from this, having multiple active loans means you have higher total debt, and this will influence your debt-to-income ratio. If you default on or are not able to pay the EMIs, your credit rating drops significantly, and you are less creditworthy to borrow again. So, care should be taken before taking another loan.
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Balancing EMIs and tenure for ease of repayment Two or more personal loans mean juggling two or more EMI schedules. Stretching the tenure lowers the monthly EMI but incurs higher total interest paid, while reducing the tenure saves interest but puts a stricter strain on finances. An EMI calculator would help choose the repayment schedule of both loans. Experts suggest total EMIs of all loans not to exceed 40% of your income to create cash flow stress.
Interest rates and negotiating terms The second personal loan's interest rate will be different from the first one, based on the lending terms of the lender and your current financial position. As a last resort, if you have seen your income increasing or your credit score improving since taking the first loan, you can negotiate better terms. Alternatively, you can even approach a different lender to negotiate better terms. Others use several personal loans and balance transfer promotions to consolidate two or more loans into one with a lower rate of interest.
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Is taking multiple personal loans a good idea? It is in your best interest to have more than one personal loan if you enjoy having steady income, are interested in paying up, and have a clear notion of the way in which you will spend the borrowed funds. But if not managed through budgeting, the debt burden becomes too crushing too early. Always bear in mind you can sustain the total payment burden without compromising other long-term financial goals. A few loans can provide a great level of flexibility if managed well; otherwise, it might result in extreme financial pressure.
