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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.
Yes, some 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. You might not qualify for as good a deal and could end up getting caught in a cycle of debt.
You might want to rethink that loan for another reason: Overborrowing. Borrowing more than you need will 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.
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?||How getting another loan works||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 can’t be combined.|
|LendingClub||Yes||You can apply for a second loan up to 30 days after your loan has been partially funded. LendingClub combines your new loan with your current balance.|
|Laurel Road||Yes||There is no waiting period but you can’t have a total combined balance over $45,000. Payments also can’t be combined.||Read review|
|Upstart||Yes||At time of application, you may have only one outstanding loan with Upstart.|
That depends on your lender — or lenders — and your income. Most personal loan providers won’t lend to you if your debt-to-income ratio (DTI) is 43% or higher. This means that your monthly loan payments, bills and other costs can’t be worth more than 43% of your income before taxes.
You can, but it’s not always wise. Applying for multiple loans at the same time could hurt your credit score, since each completed application typically involves a hard credit check. If you can’t qualify for the full amount you want to borrow from one lender, that could be a sign that you can’t afford to borrow that much.
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 lower your credit score.
Rate shopping is when you apply for multiple loans over a short period of time. 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.
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:
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.
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 monthly payments 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.
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