Personal loans are a common financial tool that bridges the gap between aspirations and budget. But, have you ever thought about how many personal loans are realistically possible to take? The temptation of easy access to loans and the loan sellers’ conviction will always lead you to add loans for your urgent needs. This is a great help to manage expenses at times, but acquiring too many loans might also sometimes trap you in the mess of never-ending EMIs.
While there is no limit to taking loans, the number of loans you take should depend on a lot of factors like your income, credit score, future financial health, etc. This blog answers the frequently asked question of whether you can have more than one personal loan. Read on to understand the complexities of juggling with multiple personal loans and uncovering the potential benefits and risks involved.
What Are Personal Loans?
A personal loan is an unsecured loan that allows you to borrow money for various purposes, such as debt consolidation, emergency needs, medical expenses, home renovations, or travel expenses. Personal loans do not require collateral. When you take out a personal loan, you agree to repay the borrowed amount in fixed monthly installments, over a specified period. Throughout the loan term, a fixed interest rate applies to the loan amount.
The maximum number of personal loans one can have depends on factors like income, credit score, and debt-to-income ratio. While there’s no strict limit, it’s important to play wise while adding up multiple loans to avoid financial stress.
The following key principles characterize personal loans:
- Assessment of the borrower’s creditworthiness is done based on factors like credit score, income, and repayment capacity.
- The lender does a risk assessment.
- The lender determines the interest rates based on the borrower’s creditworthiness, loan amount, and repayment tenure.
- A clear repayment schedule is established, specifying the monthly instalments and the total tenure of the loan.
- The lenders explain the mechanisms to recover the loan amount in case of default, which may include legal action.
Factors That Determine If You Can Take More Than One Personal Loan
Taking multiple debts simultaneously is not advisable. Still wondering how many loans can you have at once? If you are in a situation where you have to take more than one personal loan, then the following factors matter:
- Credit Enquiry:
Every time you apply for a new personal loan, your credit report undergoes a hard inquiry to verify all payments and defaults, if any. This negatively impacts your credit score.
- Multiple EMI:
Adding another loan means adding a new EMI. With multiple EMIs, it gets difficult to manage repayments on time. There are high chances of missing a repayment and hurting your credit score.
- Debt-to-income (DTI) Ratio:
The debt-to-income ratio measures how much you pay monthly versus your regular income. Just sum up all your debt instalments and credit card expenses and divide it by your monthly income to get your DTI ratio. A lower debt-to-income ratio (DTI) suggests that you have a lower debt burden and can comfortably handle additional debt. And, a high DTI is a red signal to the lenders that you do not have a good repayment capacity.
- Lender Policies:
Different lenders have different lending policies regarding how many loans a borrower can have and other risk assessment grounds. They have pre-set expectations in income, expenses, and existing debt obligations.
Advantages and Disadvantages of Having Multiple Personal Loans
| Features | Advantages of taking multiple personal loans | Disadvantages of taking multiple personal loans |
| Flexibility | Adding multiple loans gives you quick access to funds in times of need. | Adding multiple personal loans irresponsibly can lead to overspending and debt accumulation. |
| Debt Consolidation | Personal loans are a great tool for consolidating multiple debts into a single, more manageable loan. | It might not always be the most cost-effective solution. |
| Impact on Credit Score | Timely repayments of multiple loans can positively impact your credit score. | Defaulting on any one of the multiple loans can severely damage your credit score. |
| Impact on Interest Rates | Debt consolidation might reduce your overall interest burden. | An increased number of high-interest payments can strain your finances. |
| Risk of Default | Increased risk of default as you have multiple debts to manage. |
How to Manage Multiple Personal Loans Effectively?
The only way to manage multiple personal loans is with the right strategies. Whether you are a small businessperson or a salaried professional, the following tips will help you manage your multiple loans without harming your financial status:
- Timely Repayment:
First things first, make sure you have set a priority for loan repayment according to the loan interest rate. Organise your debts in the order of decreasing interest rates, and prioritise paying off the loan with the highest rate of interest first. Try to make minimum payments on the loans with a low rate of interest. Once the higher interest rate debt is cleared, repeat the same process until you go debt-free.
- Consider Debt-Consolidation:
If managing multiple loans is becoming difficult, it is about time to consolidate your debts into a single loan. Look for a loan that merges all your existing debts with ideally reduced interest rates. This process simplifies your repayment and potentially helps you save your money on interest payments. Use a personal loan calculator to compare the total cost and interest of your current loans and compare it with that of the consolidated loan. This will help you make an informed decision.
- Set a strict budget:
Setting a budget is the most important thing. Pen down all your sources of income, and prioritise the rent, groceries, bills and essential life expenses. Identify expenses that can be dropped without compromising your essential needs. This helps you free up more money for loan repayment.
- Keep a close eye on loan balances:
Vigilantly monitor your loan balances to keep a record of the outstanding principal amount for each personal loan, along with their respective interest rates. Tracking your loan balances also helps you identify any discrepancies or errors. You must take prompt action on such issues and safeguard your CIBIL score.
- Find ways for debt reduction:
Look for tax refunds, bonuses, or any other chances that can help you in paying off loans. This can help you accelerate your debt repayment process and save on personal loan interest rate costs. If there are no or minimal pre-payment penalties, then utilise such situations to become debt-free faster.
- Reach out to the experts:
It is always a good idea to consult with a finance expert who can actively guide you through multiple repayments and help you stay afloat. Lenders or credit counsellors also offer alternative repayment options that could ease financial burdens temporarily. They may help you explore potential solutions and strategies for effective loan management in your personal finance.
What Lenders Consider Before Approving Additional Loans?
It is possible to get 2 loans from the same bank or take 2 personal loans from different banks; there are no restrictions on it. However, you must fulfil the eligibility criteria for the second loan. Multiple loans can be sanctioned after strict consideration of the income, job stability, age, and credit score of the borrower. If the lender finds that you might not be able to repay or manage more than one personal loan, then they may reject your application.
Apply For a Personal Loan with Stashfin
In conclusion, while it’s possible to have multiple personal loans, it is equally important to assess your financial situation carefully. Overburdening yourself with debt can lead to financial stress and a negative credit score. You must rely on trusted lenders like Stashfin.
Stashfin makes loan applications and financing seamless with instant loans and zero paperwork. You can generate your credit report with them and get in touch with their experts to understand your current borrowing potential. By understanding the implications of multiple loans, you can make informed decisions and avoid financial pitfalls.