Individuals may require sudden finances, and they may have to raise funds on credit again. They may find some opportunities available for a short time and need to capitalise quickly, or they may need to renovate their home to be prepared for special guests, or there may be a medical emergency. At such times, a personal loan is a preference even if you have taken a personal loan earlier, as there is no limitation on the end-use of loan credit. You can apply for another personal loan, but there are important aspects to consider before applying for a second personal loan at once.
Typically, lending institutions think twice before sanctioning another personal loan to an existing borrower at the same time. However, if the borrower has paid off part of the initial balance and maintained a good credit history with timely repayments, they may sanction your second personal loan under some conditions. Check your eligibility using the personal loan calculator India before making a loan application.
Read on to know these important aspects concerning multiple personal loans at the same time.
Important things to know before applying for another personal loan
Personal eligibility criteria set by financial institutions include a minimum credit score for loan applicants. Applying for multiple personal loans at once can damage your credit score. If the lender rejects your loan application, there will be a debilitating impact on your credit score, and it will be more challenging to apply for a loan next time.
Impact on budget
Every borrower needs to repay the loan sooner or later, along with interest. Multiple loans may increase the monthly obligation. If multiple personal loan EMIs become unmanageable for a borrower, it may dent your savings. Also, delay or default on EMI would hit your credit score.
Initially, accessing multiple credit options seems a good solution during a financial crunch, but multiple loans may trap you in a perpetual debt cycle. It may put you in a debt position that doesn’t seem to end soon. Therefore, consider another loan only if the expense is unavoidable.
Higher interest rate
With multiple loans of a borrower, the lender may fear defaulting on the loan. If so, it will offer subsequent loans at a higher interest rate as there is a greater risk of default.
Personal loans are known for fast processing and disbursal. If you take a second loan, the lender may seek additional documents. It wants to be confident before sanctioning your loan that you are financially stable to repay the loan on time.
Debt to income ratio
There should be a low debt to income ratio, which is crucial for getting a loan sanctioned by the lender. Typically, if more than 30-40% of your net income goes into credit repayment, you may be ineligible for a loan.
Alternatives to Multiple Personal Loans
If another personal loan is a costly option for you due to a lower credit score, you can consider the following options:
Personal Loan Balance Transfer
A borrower can transfer the outstanding amount of a loan to another. This facility is beneficial if the borrower requires a top-up but is not satisfied with the services of the existing lending institution.
While opting for a balance transfer to another lending institution, you can negotiate for top-up personal loan terms to get additional credit at competitive rates. One can avoid the hassle of managing multiple loan EMIs easily.
Debt Consolidation Loan
Personal loans is utilising for debt consolidation. A borrower can assimilate all pre-existing outstanding balances/debts and consolidate them into one loan. The borrower needs a single amount to be paid monthly to repay the combined debts. All debts together become one larger debt offering favorable repayment terms.
One of the primary benefits of a personal loan for debt consolidation is saving your time from the chaos of numerous EMIs of multiple loans. You do not need to track EMIs, loan repayment tenures, and interest rates. You can easily avoid the baggage of tedious paperwork for multiple loans.
Overdraft Facility/Loan Against Securities
With this facility, the borrower gets a credit limit and can borrow the amount as and when needed. Another option is a loan against securities where you can collateral your stocks, mutual funds, insurance, etc., to get credit from the lenders.
Thus, even if you are all pumped for the home renovation or realise that you underestimated the costs of an event, big purchase, or other expenses, you can consider a second personal loan to cover this extra expenditure.
The hit to credit score depends on your loan type, and the time you let pass between applications. Make a wiser decision about multiple personal loans, considering the above-explained aspects.
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