Can Two Personal Loans Be Taken Out at the Same Time?

The short answer is yes. You can take out two personal loans at the same time. Taking out two personal loans can be tricky, but it’s not impossible. Most people take personal loans for big buys, debt merging, emergency costs, etc. In such cases, one can’t avoid taking out a second loan.

Personal loans are repaid with fixed monthly payments. The lender will disburse the whole amount in one go to the applicant’s bank account once the loan application is cleared. Taking out a second loan can be tricky. So, before you check eligibility for a personal loan, do a detailed study. This article highlights everything you need to keep in mind when applying for a second personal loan.

Things to keep in mind while applying for two personal loans

Repayment capacity

Calculate your repayment capacity before applying for a second personal loan. You need to check if you are earning enough to pay the loans. Lenders could find it difficult to trust you if the majority of your income is allocated to paying EMIs. This is because having a high EMI-to-income ratio means you can default more easily. Have a repayment plan while applying for a second loan; this ensures you do not default.

Interest rate

Banks and lending institutions will offer a higher interest rate for a second loan as they see it as a risk. Because you already have an initial loan, there are chances of your becoming a defaulter. Before applying for a loan, it’s a good idea to check your CIBIL score to see if it will hurt the interest rate.

Debt-to-income ratio

The debt-to-income ratio (DTI) is a crucial factor that lenders consider when approving a personal loan. The ratio reflects the percentage of the customer’s income used towards debt repayment. A high DTI shows that a large percentage of income is used for debt repayment, whereas a lower DTI shows that a lower percentage of income is used for debt repayment.

While approving personal loans, banks look at the DTI of the customer. So, one should ensure that DTI is low, especially when applying for multiple loans.

Debt cycle

If one is not careful, one may find themselves in a debt cycle due to applying for multiple loans. At first, it might seem like a good option to take out a second personal loan to cover an expense, but this can turn into a cycle. Therefore, you should seriously consider whether you need a second loan when you already have one.

On-time repayment

It is hard to keep track of all the payments when you have multiple loans. One might end up missing a deadline, which can cause problems. There will be a penalty, and it will affect the CIBIL score. So, when applying for multiple loans, set up automatic payments from the bank.

CIBIL score

An applicant’s credit score is cross-checked before sanctioning a personal loan. Most lenders approve a loan only if the score is above 750. In the case of multiple loans, the CIBIL scores can decrease as the credit companies see the person as a future defaulter and a risk to financial institutions. So, check eligibility for a loan only after checking your CIBIL score.

You should conduct regular checks on your CIBIL score. It will help you plan your future payments. For example, an outstanding amount can affect the credit score. Therefore, you should try to pay it on time, which will ensure it does not affect your CIBIL score in the long run. Tracking your CIBIL score is important if you have multiple loans or use many credit cards.

Preclosure

One of the ways to manage multiple loans is by trying to pay one loan early. Preclosing a loan that has a higher interest rate can help manage debt. It will not only help you save money, but it will also improve your credit score. Preclosure can help you manage multiple loans and ensure you do not default.

Documentation

Financial institutions might ask for additional documentation if you apply for multiple loans. It is to make sure that you can repay the loans that you have applied for. Providing the right documentation is necessary if you wish to avail yourself of multiple loans.

Alternatives to personal loans

Personal loans are a long-term commitment and can get expensive if not well planned. So, here are some alternatives to personal loans that will help:

• The first question to ask is: Can you delay this expense? Try saving up for it. Choose a loan only if you need it immediately, if you cannot delay the expense, or if you cannot save money for it. 
• Create a payment plan that will not affect the CIBIL score. Keep your repayment capacity in mind, so you do not end up in a debt cycle in the long run. 
• Apply for a personal loan with a co-applicant. Co-application improves your chances of getting approved. The financial institution might look at the co-applicant’s credit score and approve the loan. It is because a joint application will reduce the risk for the institution as the co-applicant will become liable to pay for the loan if you cannot. 
• If you desperately need a loan and there are no other options, you may have to provide collateral with the loan.

Conclusion

Multiple loans can get expensive and difficult to manage. However, they can be availed of if needed. Many institutions offer multiple loans, but your eligibility for them will be determined based on your credit history, income, and other factors. Instead of coming to a general conclusion about loans, talk to an expert. For more information on banking, finance, and personal loans, check out Piramal Finance.