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How Many Personal Loans Can You Take Out? – Forbes Advisor

How Many Personal Loans Can You Take Out?
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Getting a personal loan can be a guessing game. You may have an idea of ​​how much money you need, but this can change shortly after you sign on the dotted line. Whether you need more money to complete a home remodel or deal with additional medical expenses, you may be wondering if getting an additional personal loan is a viable solution.

Although there is usually no limit to the number of personal loans you can generally open, lenders usually set their own limitations. We’ll walk you through this, and the ins and outs of getting multiple personal loans below.

How many personal loans can you get at once from one lender?

The number of personal loans you can get from a lender depends on the specific company restrictions. Some allow clients to take out multiple loans while others limit you to one. It may also depend on your credit score, employment history, income, and other loans.

Risks of opening multiple personal loans

  • Difficult to manage The danger of getting too many personal loans is that you may struggle to keep up with the payments. If you miss a payment or are late, it can seriously damage your credit score.
  • Your DTI can increase: Taking out multiple loans can also increase your debt-to-income ratio (DTI), which can make qualifying for a mortgage or other loan more difficult. This may result in a higher interest rate on a mortgage compared to just one loan. The typical maximum DTI allowed is 43%, including the future mortgage payment. Getting multiple personal loans could push them over the edge and disqualify you.
  • It requires several difficult queries: When you apply for a personal loan, the lender will do a tough credit check, which can hurt your credit score between one and five points for a year. This means that applying for multiple loans within a short period of time can seriously damage your credit score.

When is a good idea to open multiple personal loans?

Getting a second personal loan can be a good idea if you need the money, qualify for a low interest rate and can afford to pay off multiple debt obligations. If you can’t afford the monthly payment obligations for multiple loans, it’s best to find an alternative option, such as a family loan.

How to manage multiple personal loans

If you have several personal loans, the key is not to miss the repayment. A late payment will result in additional fees and damage to your credit score.

To avoid this, you can set up automatic payments directly through the lender. But make sure you always have enough money in your checking account to cover each payment. If your bank account bounces on a payment, you may owe the bank a late fee. You can also use your bank’s bill payment feature to send payments, but the lender’s system is preferred.

Set a calendar reminder to check that the payments are made. And if you ever change banks, be sure to change the automatic payment information.

Alternatives to Personal Loans

Personal loans are not the only way to get cash when you need it. Here are some other popular options:

Credit Card Cash Advance

If you need cash, you can withdraw money from your credit card at an ATM. Card companies charge a higher interest rate on cash advances; Annual cash advance percentage rates (APRs) can be as high as 36%. Service providers also charge a cash advance fee of between 3% and 5% of the transaction amount.

The maximum amount you can borrow is usually between 20% and 30% of your available credit limit. Your available credit limit is your total credit limit minus any current charges on your account.

For example, if you have an available credit limit of $5,000, you can use between $1,000 and $1,500 as a cash advance. Unlike a normal credit card transaction, interest on cash advances will be assessed once the funds are withdrawn.

Since cash advances are quite expensive, it is recommended to use them only if you need a small amount of cash and can quickly pay it off.

Home equity loan or line of credit

A home equity loan or real estate equity line of credit (HELOC) allows you to borrow against the capital accumulated in your home. You usually need at least 15% to 20% equity to qualify for any of these products.

When you take out a home loan, you will receive a lump sum that you can use to pay off debts, complete a home remodel, or take a vacation. HELOC is a line of credit that allows you to withdraw a certain amount. You can pay this amount and then withdraw from HELOC again.

The interest rates are often lower compared to personal loans because the lender can use the house as collateral. If you default on the loan, they can take back your home. This is also what makes both home purchase loans and HELOCs riskier than a personal loan. If you default on a personal loan, the bank cannot go after your home, as most of them are unsecured.

0% APR Credit Card

If you have good credit, you can qualify for a credit card with a 0% APR offer. These special deals usually last six to 18 months, during which time the credit card company will not assess any interest on the balance. You still have to pay the minimum amount due each month. If you miss the payment, the company may cancel the 0% offer.

When the special offer expires, the interest rate will shift to a predetermined rate. If you still have credit, you will owe interest on that amount. But if you can pay off the balance before the 0% rate expires, you’ll save a significant amount of interest.

401(k) loan

If you have a 401(k) from your current employer, you can take out a loan against the balance. You can borrow up to $10,000 or 50% of your invested account balance up to $50,000. For example, if you have $45,000 in your 401(k), you can borrow up to $22,500. Unlike other loans, when you pay interest on a 401(k) loan, the interest is deposited back into your account.

The term of most 401(k) loans is five years, but if you lose your job or leave work, you will have to pay off the remaining balance within 90 days. If you do not, the unpaid amount will be treated as an early withdrawal. In this case, you may have to pay taxes and a fine of 10%.

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