Personal loans are a popular way to borrow money for any purpose. They offer lower interest rates than most credit cards and come with a payment plan that lets you know exactly how long you will have to pay back the loan. They can be used for any number of reasons, from buying a car to remodeling a home.
While there is no federal regulation that prohibits the number of personal loans you can have, some lenders limit or disallow multiple loans. It all comes down to your financial situation and the lender you are working with.
It is possible to have more than one loan from the same lender, and some even allow you to have several loans with them at once. It all depends on your personal finances and how the lender views your overall debt situation, says Carolyn Carter, deputy director of the National Consumer Law Center.
Having too many loans at once could hurt your credit score. Having too much debt on your credit report makes it more difficult for you to qualify for new loans in the future, according to a CreditCards.com survey of consumers.
In addition, taking out more than one loan at once can make it difficult to juggle your payments. Missing a payment on a personal loan can negatively affect your credit score, and it can also lead to penalties or fees.
Another issue is that accumulating too much debt can have negative effects on your debt-to-income ratio, which is used to determine whether you will be approved for a new loan.
A debt-to-income ratio is calculated by adding your monthly debt payments and dividing them by your monthly gross income. This is a key factor in determining whether you can afford to pay off your loans and get a mortgage.
If you owe less than half of what you earn on your primary residence, it’s a good idea to consider other ways to borrow the money you need. For example, you may want to take out a small home equity loan to cover the rest of the house’s expenses.
You can also get personal loans from family or friends who are willing to lend you cash without putting you through a complicated approval process. This can be especially helpful if you’re in need of a large sum of cash quickly or have trouble getting a traditional loan.
It’s important to treat any loan from a loved one with care and put all terms on paper, including the interest rate. This will avoid any potential misunderstandings and create a written contract that you can both sign to avoid any complications.
If you have an existing personal loan, you should always pay off that first one before applying for another. This will help keep your debt-to-income ratio in check and will give you a better chance of being approved for a second loan.