People may need money on short notice and may need to borrow money again. They can come across chances that are only available for a certain period of time and need to seize them fast, or they might need to modify their home to make it ready for important guests, or there might be a medical emergency. Even if you’ve previously taken personal loans, a personal loan in these circumstances is preferable because there are no restrictions on how the credit can be used. You can apply for a second personal loan, but there are certain crucial factors to take into account before doing so.
Lending institutions generally hesitate before approving a second personal loan to a current borrower at the same time. However, in certain circumstances, they might approve your second personal loan provided the client has partially repaid the previous balance and has maintained a strong credit history with on-time repayments. Before submitting a loan application, determine your eligibility with the personal loan calculator India.
Continue reading to learn more about these crucial details of taking out many personal loans at once.
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Important things to know before applying for another personal loan
Credit score
A minimum credit score is one of the personal qualifying requirements that financial organizations impose for loan applicants. Multiple personal loan applications made at once could lower your credit score. Your credit score will suffer if the lender rejects your loan application, and it will be more difficult to apply for a loan the following time.
Impact on budget
Every borrower is required to pay back their loans, plus interest, at some point. The monthly payment may go up if you have many loans. It could reduce your savings if you have many personal loans with EMIs that are too much for you to handle. Additionally, EMI delays or defaults will lower your credit score.
Debt cycle
Accessing many credit alternatives first looks like a wonderful way to get out of a tight spot financially, but doing so could put you in a never-ending spiral of debt. You can end up with debt that doesn’t seem to be going away anytime soon. Therefore, only take into account a second loan if the cost cannot be avoided.
Higher interest rate
Lenders may be concerned about default when a borrower has many loans. If so, it will charge a higher interest rate for subsequent loans because the chance of default is larger.
Additional documents
Fast processing and disbursement are hallmarks of personal loans. If you take out a second loan, the lender can ask for further paperwork. Before authorizing your loan, it wants to be sure that you have the financial stability to make the required payments.
Debt to income ratio
Low debt-to-income ratios are essential for obtaining the lender’s approval for a loan. Generally, if you pay back credit with more than 30 to 40% of your net income, you could not be eligible for a loan.
Alternatives to multiple personal loans
You might take into account the following possibilities if getting another personal loan will be expensive for you because of your poor credit score:
Personal loan balance transfer
The outstanding balance of a debt may be transferred from one borrower to another. If the borrower needs a top-up but is dissatisfied with the assistance provided by the current lending institution, this facility can be helpful.
You can bargain for top-up personal loan terms when choosing a balance transfer to another lending institution to obtain additional credit at favorable rates. Multiple loan EMI management can be readily avoided.
Debt consolidation
Debt consolidation often uses personal loans. A borrower has the option to combine all of their prior outstanding debts and amounts into a single loan. The borrower must make a single monthly payment to cover all of the debts. All debts combine to form a single, more manageable obligation with favorable terms for repayment.
Saving your time from the complexity of many EMIs of various loans is one of the main advantages of a personal loan for debt consolidation. Tracking EMIs, loan repayment terms, and interest rates are not necessary. It is simple to avoid the burden of time-consuming paperwork for numerous loans.
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Overdraft facility
The borrower receives a credit limit with this facility and can borrow money as needed. A loan secured by securities is an additional choice where you can use your stocks, mutual funds, insurance, etc. as collateral to obtain credit from the lenders.
You might thus think about getting a second personal loan to pay for this additional charge, even if you are super excited about the house makeover or realize that you overestimated the costs of an event, a major purchase, or other expenses.
The impact on credit score varies depending on the loan type and the interval between applications. Take into account the aforementioned factors as you decide whether to take out multiple personal loans.
