Risks and tips for taking out a second loan before you’ve paid your first one off.
A second loan can help when you’ve underestimated costs for an event, big purchase or other expense. But beware: It can be more expensive and riskier than that first loan.
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Can I take out two personal loans at the same time?
Yes, many lenders allow you to take out a second loan once you’ve paid off part of your initial balance and established a history of on-time repayments. But it’s not always a good idea.
For one, you might not get the best deal. Lenders decide how much you can borrow, your APR and loan term based on factors like your credit score and debt-to-income ratio (DTI). If you’ve recently taken out a loan, your credit score will have taken a hit after getting a hard credit check, which can make you appear as more of a risk.
The fact that you’ve recently taken on debt also increases your DTI, which lenders look at to determine your ability to repay a loan. Like low credit scores, borrowers with high DTIs are considered risky and can have trouble being approved for a loan with a competitive rate.
Beware of overborrowing
Another reason you might want to rethink that second loan is overborrowing. Borrowing more than you need may increase your monthly payments and the overall cost of your loan, making it more difficult for you to pay off your debts. It can also spark a cycle of debt if you become dependent on loans as a source of capital.
Avoid overborrowing by calculating exactly how much you need before applying for a personal loan and only applying for that amount.
What are lenders’ rules for taking out multiple loans?
Each lender has its own requirements for taking out a second loan before you’ve paid off the first. Here are the second loan policies of six top online lenders:
| Lender | Can you take out more than one loan? | Criteria | |
|---|---|---|---|
| Prosper | Yes. You’ll have to wait at least six months before applying for another loan. Any outstanding loan is included in Prosper’s $40,000 total loan limit. Payments cannot be combined. |
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| LendingClub | Yes. Up to two active personal loans at the same time. If your loan has been partially funded and you reapply during a 30-day period, it’s still considered a single loan. |
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| Laurel Road | Yes. Total loan limit has a maximum of $45,000. No waiting period and payments can not be combined. |
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| LendingPoint | No. Only possible to take out one loan at a time. |
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| Marcus by Goldman Sachs | No. Only possible to take out one loan at a time. |
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| Upstart | Yes. At time of application you must only have one outstanding loan through Upstart. |
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3 cautions to consider before getting another loan
- You might have trouble borrowing in the future. Taking on debt can be good for your credit if done in moderation. But it doesn’t look good when you apply for a loan if you have too many inquiries on your credit report or are on the hook for a lot of debt.
- It might not be the financial help you need. Regularly taking out personal loans to cover personal expenses could be an indicator that you’re stuck in a debt cycle. In this situation, you might benefit from other financial services like debt relief. There’s a chance that taking out another personal loan might only dig you deeper into debt.
- How much you owe each month will increase. Multiple loans means multiple monthly repayments. While lenders generally won’t approve you for a loan that you can’t afford, if your financial situation changes, it could be more difficult to make these repayments than if you took out a larger loan with a longer term.
What about applying for multiple loans at the same time?
Applying for multiple loans at the same time could hurt your credit score, but it depends on how far you get in the application process, your loan type and how much time you let pass between applications.
If you’re just interested in comparing rates, many lenders allow you to fill out a prequalification or preapproval application to get an idea of what kind of loan you might get if you continue. These typically use a soft credit pull, which has no impact on your credit. Taking further steps often involves a hard credit check, which can temporarily damage your credit.
The exception is rate shopping — or applying for multiple loans over a short period of time — especially with auto loans, student loans or mortgages. If you’re applying for roughly the same amount of money with similar lenders, credit bureaus often recognize that you’re trying to find the best rate, not actually attempting to take out multiple loans.
In this case, credit reporting agencies count all hard inquiries from lenders within a certain period — usually between 14 and 45 days — as one. The inquiry also won’t appear on your credit report immediately, allowing you to look for multiple loans with your original credit profile.
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4 tips to get your next personal loan application approved
You’ve decided it makes financial sense to get a second loan. Here are a four things you can do to increase your chances of approval:
- Check your credit report first. There’s a chance that your credit report contains mistakes that could hurt your credit score. If you notice anything off, contact the financial institution involved and the credit bureau to have it fixed before you apply for a personal loan.
- Make your repayments on time. Your payment history accounts for 35% of your credit score. Making all of your payments can increase your credit rating — missing some can cause it to dive.
- Pay off as much debt as you can. The less debt you have, the more attractive you are to lenders. Try waiting as long as you can before taking out a second loan to lower your DTI and up your chances of approval and competitive rates.
- Know how much you can afford. You aren’t likely to be approved for a loan with monthly repayments that you might not be able to afford. Having an idea of how much you can pay and how much your loan will cost can help you find the right loan for your personal financial situation.
Got an ongoing project? Consider a line of credit
When you’re not sure how much you’re going to end up needing to borrow, a line of credit might make more sense than applying for a personal loan. Lines of credit have the flexibility of a credit card — you can withdraw however much you need. But they typically come with higher credit limits and lower rates, similar to a personal loan.
Some are revolving and come with minimum monthly payments like you’d get with a credit card. Others come with fixed terms, typically one to five years.
Is a personal line of credit right for you?
Bottom line
It’s possible to take out more than one loan at once, but it could damage your credit and increase your debt-to-income ratio, making it more difficult for you to qualify for competitive rates in the future. Overborrowing can also lead to unaffordable repayments and a cycle of debt.
This doesn’t mean a second loan is always a terrible idea. If you find yourself needing more funds than you originally anticipated, you can afford to take on more debt and you’ve paid off some of your original loan already, a second loan could help. Use our personal loans guide as a starting point to find and compare lenders.
