Mortgages, auto loans and personal loans are all instalment loans. There is no set rule on how many instalment loans you can have at once. As long as you have the income, credit score and debt-to-income (DTI) ratio that a lender requires, an instalment loan from another lender won't be held against you.
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.
For example, applying for a mortgage a few months before taking out a personal loan or credit card is completely natural. But lenders' alarm bells may ring if you ask to borrow money multiple times within a short period. This could signal that you're a high-risk borrower who will struggle to pay them back.
It is possible to take out multiple personal loans with the same lender.
However, lenders rarely allow you to take a second loan alongside the first.They'll usually insist 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.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.
What should you do before taking out another loan?
1. Check the affordability
Lenders are responsible for carrying out affordability checks and ensuring they're lending money responsibly, but sometimes people are given loans they later struggle to afford.
Be honest about how much you can repay and think twice about taking out a second personal loan if you think you may overstretch yourself.
2. Compare multiple loans before applying
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.
Although it's possible to have multiple personal loans at once, taking on several lines of credit simultaneously can make the debts harder to manage.
How to manage multiple loans:
1. Create a realistic payment plan
If you have multiple loans, ensure a realistic repayment plan. This will help you to avoid late payments, reduce the amount you spend on interest or fees, and protect your credit score.
2. Automate your payments
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.
3. Set calendar alerts
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.
Personal loans are great tools to finance all personal, and even some professional, needs. There are no hard rules confining borrowers on loans they can take out simultaneously. However, a second loan demands timely payments of EMI just like the first loan.
Disclaimer: This article was written as part of Youth Ambassador Program. True Scoop advises to perform your own due diligence before making a financial decision. The author views do not reflect those of True Scoop.