Can You Take More Than One Personal Loan? Here's What You Need To Know
Having a second personal loan means you have additional funds to meet necessary financial obligations without compromising your existing resources
Personal loans are a popular financing solution that is also easy to access. However, at times when you may have unavoidable expenses like medical emergencies, home repairs, or wish to consolidate your debt, taking a second loan may be necessary. But, can you take a second personal loan? The answer is, yes. You can take a second personal loan, provided you service it on time. However, having two personal loans comes with its challenges and risks. Let’s understand what these are, as well as the benefits of doing so.
Pros of Taking Multiple Personal Loans
More funds at your disposal
Having a second personal loan means you have additional funds to meet necessary financial obligations without compromising your existing resources. This is especially helpful if your existing loan is insufficient to cover expenses and the second loan can bridge the gap to help you cover the necessary costs.
No restrictions on the end use of funds
Lenders typically have no restrictions on the end use of funds obtained via a personal loan. Save for speculative investing and illegal activities, you can use the loans for various purposes, such as medical expenses, weddings, education, home improvement, or consolidating high-interest debts etc.
Cons of Taking Multiple Personal Loans
Increased financial burden
Having more than one loan means higher repayment obligations which can lead to higher EMI outflow. This can strain your budget and cause financial stress. Moreover, if you are unable to service all loans on time, missed payments will negatively impact your credit score.
Higher interest payments
Personal loans are unsecured loans which typically have a higher interest rate compared to secured loans. If you have two personal loans running, your interest payments alone can add up to a significant amount, pushing you deeper into debt. Managing these costs carefully is crucial to avoid paying more than you anticipated.
Risk of over-borrowing
With having access to multiple loans, you run the risk of over-borrowing or borrowing beyond your repayment capability. This can potentially become a debt trap where a majority of your income is used to service the loans, leaving little left for savings or unexpected expenses.
What to Consider Before Taking a Second Loan
Potential impact on credit score
When applying for a loan, the lender makes a hard enquiry on your credit score. Multiple hard enquiries can present you as credit hungry, something which lenders find unfavourable. So, before taking a second loan, ensure your credit score is high to avoid having your application rejected or being offered a high rate.
Lenders' policies
Different lenders may have different policies regarding having multiple loans. Some may impose restrictions on taking a second loan or may offer different terms for existing customers. Check with your chosen lender about their policies regarding this to avoid surprises later.
Loan affordability
Calculate your Debt-to-Income (DTI) ratio before taking on another loan. A DTI ratio above 40 per cent indicates a high debt burden which may lead to challenges in managing repayments. Before applying for an additional loan, ensure your income is sufficient to service all loans without compromising other financial goals and obligations.
Some situations necessitate the need for additional funds and taking a second personal loan may be an ideal solution. But, before you do that, ensure that you can afford the EMIs comfortably without straining your finances. When you have a second loan, make sure you make payments towards it on time and prepay when you can afford, to reduce your debt burden faster.
The author is AGM, Communication at Bankbazaar.com. This article has been published as part of a special arrangement with BankBazaar.
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