How many personal loans can you take out at once?

Life costs a lot, and everyone needs more money sometimes. The challenge is how to get it. Credit cards are an easy go-to, but the interest can be crushing if you can’t pay off the whole balance right away. 

We’ll explore whether you can get another personal loan even if you already have one. If you can, should you? 

Let’s take a look.

Is there a limit to the number of personal loans that I can take out?

There’s technically no limit to the number of personal loans you can have. Applying for or having multiple personal loans has advantages and disadvantages. 

Benefits of having multiple personal loans

Let’s first go over some of the reasons you might want to consider getting multiple personal loans.

Borrow more

Taking more than one personal loan could get you the money you need to cover a large expense or consolidate other debts. 

If you don’t own your home, a second personal loan is a good alternative to a home equity loan, which is only available to qualified homeowners. 

Avoid revolving credit

Multiple personal loans might make better financial sense than relying on credit cards. Personal loan interest rates tend to be lower than credit card interest rates. Also, credit card minimum payments are designed to keep you in debt for a long time, but a personal loan will have a set payoff date.

Fixed interest rate

Most personal loans have fixed interest rates, so the interest rate doesn’t change over the life of your loan. Most credit cards have an interest rate that fluctuates. Costs and your payment amount can be unpredictable.

Fast funding

A personal loan can be funded quickly, often within a few days of approval. 

Credit impact

A personal loan is an installment loan. The balance on installment loans doesn’t impact your credit the way credit card balances can. Also, making your personal loan payments on time can have a positive impact on your credit.

Potential disadvantages to having multiple personal loans

There are potential downsides to applying for and having multiple personal loans. 

Credit impact

Personal loans also have the potential to negatively affect your credit profile. 

While there’s no specific limit to the number of personal loans you can have at once, you’ll need to go through an application and approval process for each personal loan. Every application is all but guaranteed to trigger a credit check. This is called a hard inquiry, and each one could have a temporary negative impact on your credit. 

Some lenders also limit the number of recent inquiries qualified applicants can have on your credit report. If you have applied for too many new accounts in recent months, they might automatically decline your application.

Loan fees

Most personal loan lenders charge a fee for making the loan. It’s called an origination fee, and it’s often between 2% and 8% of the loan amount. Typically, this fee is deducted from your loan amount before you get the money. So if you borrow $20,000 and there is a 3% fee, you would receive $19,400.

Debt-to-income ratio

Every loan you have affects your debt-to-income ratio. That’s the percentage of your income that you spend on debt. Most personal loan lenders have a maximum debt-to-income ratio that they allow, and if yours is higher, you can’t get approved for a new loan. This is also normal for auto loan and home loan lenders. If you have too much outstanding debt, you might have a hard time qualifying when you want to.

What lenders consider before approving a second personal loan

Lenders look at your credit profile, your income, and your other financial obligations when you apply for a loan. You’ll need to meet the lender’s minimum credit score and show that you have a steady income. If your income isn’t high enough to qualify for a second personal loan on your own, you can apply with a co-applicant or co-signer. The lender will consider their income and credit profile in addition to yours when they decide whether to approve your application. Co-applicants share the loan and share responsibility for paying it back. Co-signers don’t share the loan, but they are promising to repay the loan if the primary borrower doesn’t. 

Can I take out a new larger personal loan and pay off the old one?

Yes, you can take out a larger personal loan and pay off the old one. 

You should consider the terms of the new loan carefully. Compare the monthly payments and costs—interest and fees—and ensure it is the best option. You should also make sure that you can make the new loan payments on time and in full.

The lender will examine your credit history, income, and debt-to-income ratio. A high debt-to-income ratio (you have a lot of debt obligations compared to your income) may affect ‌your ability to qualify for a larger personal loan.

When to consider multiple personal loans 

A personal loan can be a smart financial tool. You might save money on interest compared to other options, you may be able to cover a large expense or consolidate higher-interest debts, and the monthly fixed payments may make it easier to stick to a financial plan. Reasons multiple loans make sense:

• You’ve had a personal loan for several years and have successfully made payments. Because some lenders cap the amount you can borrow—and you can’t add to a personal loan that’s already in place—some people take out another personal loan to finish consolidating higher-interest debt.

• You have a large upcoming expense. Whether it’s paying down medical bills or paying for an emergency or unavoidable expense, a personal loan may be a better option than a credit card.

• You aren’t a homeowner. One personal loan might not cover your needs, and if you’re not a homeowner, home equity loans (which tend to have higher limits than personal loans) are not an option.

• You qualify. If your credit profile is good enough to qualify, a personal loan may help you maintain it or even improve it while giving you the cash you need.

When to avoid getting multiple personal loans 

• You’re having trouble paying your current bills. Taking on another personal loan doesn’t get rid of your debt. It only moves the debt to a new place. 

• You want to cover a luxury expense. A personal loan can cover a large expense, but don’t use one to live above your means. It’s usually not a good idea to borrow for a vacation or for luxury goods that you can’t afford. Instead, consider trying to increase your income—even through gig work like babysitting or dog walking—to cover the expense.

• You don’t have a big-picture financial plan. You can use a personal loan to consolidate higher-interest credit card debt and get closer to a debt-free life. But any time you pay off credit cards there’s a risk that you’ll run the balances back up. This is a common pitfall that you need to know about. Don’t use a personal loan to pay off your credit card accounts and then charge them back up. Then you’ll be financially worse off. Think through what you’ll do after you pay off your other debts before you apply for a loan.

• You’re planning to apply for a mortgage or car loan soon. Multiple personal loans, especially ones with large balances and a short history of payments, may make it hard to qualify for additional loans. 

A personal loan is a financial tool in your toolbelt

A second personal loan might be an excellent financial tool to help you reach your money goals. Before you click to apply, have a clear idea of how and where the money will be spent. Give the loan a clear purpose and make a plan for following through.