It is not possible to predict what will happen next in life. There is no guarantee that if you already have a loan, no fresh needs will arise before you repay it. If you ask a blanket question whether you can take more than one personal loan at a time, the stock answer is yes. However, you will have to take into account several factors before you decide to take another personal loan. It is a question of exposing yourself to more debt than you can handle. Unless it is an absolute emergency, you will have to exercise abundant self-control and avoid the impulse to take another personal loan as an easy way out of your sticky financial situation.

Factors to consider before applying for another personal loan – 

Loans need to be repaid

Your credit score will be impacted

You may be charged a higher interest rate

Further documentation may be needed

You may be stuck in a vicious debt cycle

Your net worth should be positive

You should not pay more than 50% of net income as EMI

Let us explore each of these reasons in detail.

Loans need to be repaid

Loans are not free funds. They come at a cost and need to be repaid. You cannot default on your EMIs. This means that you will have to think long and hard before going for a second personal loan while the first is still being serviced. The ease of getting a personal loan cannot determine whether you should be taking a second loan at all. This option should be explored only when nothing else is available.

Your credit score will be impacted

Taking a second personal loan will definitely impact your credit score by a few points. If you default on either loan, your credit score will be badly impacted. You have to be extra sure of your repayment capacity before you avail of a second personal loan.

You may be charged a higher interest rate

Even if you are willing to take a second loan, the lender may not be convinced. In order to cover the additional risk, it is natural that the lender may charge you a higher interest rate.

Further documentation may be needed

In case you need to take a second personal loan, the lender will demand more documentation. He will need to confirm that you will be able to handle the additional EMI and will not default. He needs to be sure that you have a stable job/source of income and will not delay or default on the EMI.

You may be stuck in a vicious debt cycle

If you take back to back personal loans, there is a chance that you will be stuck in a vicious debt cycle where you will be always paying off some debt. This goes not only for personal loans but for any form of credit that you may choose. You will be stuck in a cycle where you always spend more than you earn. Unless you are investing the loan amount for a purpose which yields more return than the interest you pay.

Your net worth should be positive

Net worth = Assets – Liabilities. You will have to draw up your personal balance sheet to check if your net worth is positive. If the new loan will make your net worth negative, it is a simple NO. You should have enough financial backing or prospects of money inflow in the near future if you want to take a second loan for an urgent, unavoidable purpose. Remember, hope is not a strategy.

You should not pay more than 50% of net income as EMI

Before you think of taking a second personal loan, use the personal loan EMI calculator. Work out the ideal EMI that will not affect your monthly budget. Remember that you should not be using more than 50% of your net monthly income as EMI.

Ok, so we have identified the factors you should consider before availing multiple personal loans, let us assume you still have a financial need that you need funds for what could be some alternatives?

Use your savings

Liquidate your dead investments

Top up your existing personal loan

Consolidate your existing debts

Manage your monthly budget

Use your savings

If you have savings in the bank, this is the time to put it to use. It will work out cheaper in the long run as you can avoid the additional interest outflow.

Liquidate your dead investments

If you have some dead investments that are not yielding much, you may choose to liquidate them and fund the requirement. It will work out better than taking a second loan and adding to the EMI burden.

Top up your existing personal loan

Since you are already servicing a personal loan, you can explore the possibility of an outstanding balance transfer to another lender with a top up personal loan. This may help you to tide over your existing crisis without creating a fresh loan. If you are lucky, you may get better rates as well.

Consolidate your existing debts

If you are struggling with multiple debts, this would be a good time to consolidate your debts by opting for a single personal loan. This would eliminate the stress of dealing with multiple lenders and paying EMIs at different times during the month. You will need to deal with one lender only and a single monthly EMI. 

Manage your monthly budget

You will need to tighten your belt and manage your monthly budget. Cut down on frivolous spending. The savings you generate will help towards the additional EMI till you pay off the debt. The aim should be to plough in any additional inflow of funds towards the repayment of the debt. After six months, you should be able to start prepayment or foreclosure of the loan without any prepayment penalty.

If you still need to go ahead with a personal loan, you can always visit the LoanTap website and fill up an online application. Once you upload the necessary documents, we will evaluate your application and see whether it can be approved. If everything is in order, your loan will be processed within 24-36 hours. Remember, credit is easily available but should be used in moderation and with abundant prudence.

Related article – Checklist before applying for a Personal loan

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Satyam Kumar is banking industry veteran with enriched experience of more than 20 years. Apart from founding LoanTap and FinTech Association of Consumer Empowerment, he is an avid traveler and holds keen interest in Blogging. He has amassed profound knowledge in FinTech trends, banking, consumer trends, food and mythology which he loves sharing with others.
Satyam kumarSatyam KumarCEO & Co-Founder, LoanTap asset 8 asset 9
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