Learn about the risks and get tips for taking out a second loan before you’ve paid your first one off.
It’s not hard to imagine: You’ve already taken out a £10,000 personal loan, say, to help pay for your wedding — but that was before you found your dream venue. You borrowed £5,000 to buy a second car — but then the first one packed up.
A second loan can help when you’ve underestimated the total cost of an event, a major purchase or just about any other expense. But beware: It can work out more expensive and riskier than that first loan.
Can I take out two personal loans at the same time?
Yes, in theory this is perfectly possible, provided the lender allows it. Ultimately, lenders want to lend, and the more money they lend, the more money they make in interest. Naturally they’ll want to take care not to expose themselves to undue risk (they want to be sure they’ll get their money back) and they also have a responsibility to ensure that they are lending responsibly.
In reality, each lender will have its own policy around additional borrowing for existing loan customers. For example:
Alternatively, you always have the option of applying to a different lender. However, bear in mind that they will take into account that you already have a personal loan running with another lender. That could make you a higher risk, so you might find yourself getting rejected or else offered a rate higher than the advertised representative APR. Many applicants don’t realise that lenders are only obliged to award the representative APR to 51% of people who take out a loan. The other 49% could pay a higher rate of interest, depending on factors like credit score, risk profile and income/expenditure.
Consolidating the debt (which some lenders may insist on) could be another viable option, but perhaps you scored a fantastic rate on your first loan, and you don’t want to lose it, or perhaps you want to avoid being penalised for paying off your first loan early. A common early repayment policy among providers of personal loans is to charge two month’s additional interest on any amounts paid off early, so by moving the debt to a new loan, it’s theoretically possible to find yourself doubling up on interest.
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Warning: late repayments can cause you serious money problems. See our debt help guides.
What are lenders’ rules for taking out multiple loans?
Each lender has its own additional borrowing terms. Here are some example policies from some popular lenders:
|Lender||Policy on additional borrowing||Info link|
|You can’t apply for a top-up. However, you can take out a separate loan by heading to Shawbrook’s website.||Go to site|
|You can’t top-up your existing loan. However, you can take out a separate loan by heading to RAC’s website.||More info|
|You can’t top-up your existing loan. However, you have two options. Take out a separate new loan on top of your current amount. Or, take out a new loan which has the amount you need for your new loan, as well as the amount you require to pay off your old loan. Apply online.||Go to site|
|There are options to take a second loan or arrange a new loan which will repay your existing M&S Loan and provide you with the additional borrowing that you require. Application would involve a credit check and an assessment of your individual financial circumstances.||Go to site|
|You can’t “top-up” your existing loan, but might be eligible to take out a separate loan. This is is only possible after you have paid back at least 20% of all your existing loans with Lendable, and after you have made at least 6 successful monthly repayments.||Go to site|
|If you choose to borrow more, you have the option to either completely replace your current loan with a new, larger loan, or take out a second loan.||More info|
|The AA does not add on additional funds to a loan, however if you wish to borrow more money you can settle your existing loan and reapply for a new one.||Go to site|
Warning: Late repayments can cause you serious money problems. See our debt help guides.
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Beware of over-borrowing
Another reason you might want to rethink that second loan is over-borrowing. 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 over-borrowing by calculating exactly how much you need before applying for a personal loan and only applying for that amount. If there are too many unpredictable factors to come up with a solid number, you might prefer to consider a “line of credit” product, such as a credit card. This gives you continual access to a certain amount funds but only charges interest on the amount you borrow.
3 things to consider before getting another loan
- You might make it harder to borrow in the future. Taking on debt can be good for your credit if done responsibly. But when you apply for a loan it doesn’t look good if you have too many inquiries on your credit report or are in a great deal of debt already.
- 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 new, 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 record and put off prospective lenders, 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 few basic details to get an idea of the likelihood that you’d get approved, and the size of loan and rate that might be available to you. These might use a “soft” credit search facility, which leaves no trail on your credit record. Taking further steps often involves a hard credit check, which would leave a footprint.
Just because you tend to use one particular lender, that doesn’t mean you’re shackled to them for life. In fact, it usually pays to shop around.
4 tips to get your next personal loan application approved
You’ve decided it makes financial sense to get a second loan. Here are 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 chances of securing finance. If you notice anything amiss, contact the financial institution involved and the credit reference agency to have it fixed before you apply for a personal loan.
- Make your repayments on time. Your payment history plays a significant part in your credit score. Making all of your payments in a timely fashion is likely to increase your credit rating, while missing some can cause it to dive.
- Pay off as much debt as you can. Broadly speaking, 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 level of debt 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.
It’s possible to take out more than one loan at once, but proceed with caution. If you’re planning to take out a mortgage sometime soon, you won’t want to have multiple personal loans running when you come to apply, or a history of over-borrowing. Over-borrowing 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 be the way forward. Use our personal loans guide as a starting point to find and compare lenders.
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