Can you get a loan if you already have another one? The answer is yes. You can be approved for multiple loans such as business loans, small personal loans, credit loans and many more. Lenders do not have a specific limit when it comes to the number of loans that a person can be approved for. Before they approve you for another loan, there are several factors that they will consider. In other words, whether you can get another loan depends on credit assessment. This is a complex statement, and we are going to break it down. When a borrower wants another loan, the most critical factor for consideration is the debt to income ratio.
The Role of Debt to Income Ratio
This one factor that carries a lot of weight when it comes to taking an additional loan. In case you already have a loan, and you want an additional one, the ratio helps lenders to determine how much more debt are you in a position to handle. The ratio is calculated by taking the total monthly debt and dividing it by the total monthly income.
Most lenders prefer the ratio to be 36% and below. However, there are cases when lenders accept a ratio of up to 50%. In case the ratio is very high, a borrower may still have other alternatives to consider. For instance, one may be required to look for someone to co-sign the loan. In this case, the co-signer is held liable in case the primary borrower defaults. In case these options are not feasible, then one cannot be approved for another loan.
The point here is, the debt to income ratio plays a significant role in determining whether you can get multiple loans. In case the ratio is within acceptable limits, lenders will go ahead and examine other factors. During the assessment process, the lender takes into account other factors such as income and costs, credit rating, work stability, and the borrower’s standing before the lender. This will help the lender to make a sound decision regarding a second loan application.
But should you take another personal loan because you are eligible? Find out more by clicking here. Financial discipline is very important. It would help to consider this option when it is necessary, or there is nothing else that you can do apart from borrowing again. Aim at getting out of debt. This would mean that you limit the number of loans and applying the minimum amount possible.
From the preceding, a borrower can be approved for additional loans provided he or she qualifies for them. We said it would be appropriate if you don’t apply for another loan because it means you are getting into a lot of debt. Which reason can you give against taking multiple loans?
Applying for several loans hurts your credit. Any loan application attracts a hard inquiry. According to financial experts, a single application lower credit score by 10 points. This means if you apply for five different loans within a short time, your overall rating will decrease by 50 points. It will take a lot of time and effort to restore the score the level it was before starting applying. Furthermore, the effect will be felt for up to 12 months, though the information will be reflected on your report for up to 24 months. Also, several applications serve as a red flag from the lenders’ standpoint. Several loan applications make lenders feel you are desperate for credit.
Why It Is Advisable to Wait
If the above reasons do not convince you, there is more that you need to know about borrowing again. Here are some additional reasons why financial experts ask borrowers to wait before applying for other loans.
- You may not get the most appropriate deal. In case you have already taken a loan, a hard inquiry may have led to a decrease in your credit score. What is the effect on your second loan? You are likely to be categorized as a high-risk borrower, and therefore lenders will be reluctant to give you loans at better terms.
- Your debt to income ratio is going to be higher if you take another loan. As stated earlier, the debt to income ratio is very significant when it comes to qualifying for loans, including a second loan. But how is the ratio calculated? We earlier stated that the total debt is divided by the total monthly income. This means that if you take a loan when you already have another one will increase your debt to income ratio. As a result, you can hardly qualify for other loans.
- Your credit score may drop significantly. Taking another loan when you already have another one has a lot of implications. In case hard inquiries are made, you are going to have a lower credit score. Well, your rating can also fall for another reason. The debt to income ratio is a credit factor. A higher debt to income ratio results in a lower credit score. So how will you be affected? With a lower rating, lenders will view you as a high-risk borrower. You can hardly be approved for credit. Even if you get approved, it is most likely to be at higher rates. You will not have what it takes to negotiate for better terms.
- It may not be a solution to your problems. Why are you taking another personal loan? If it is because you need to cover your expenses, then it is a bad indicator of financial issues. It means you cannot live without debt. The best thing would have been to consider other alternatives, such as debt relief.
- The amount you owe will surge. Several loans imply several monthly payments. Indeed, lenders cannot give you loans in case you cannot afford them. If something undesirable happens to you, you may not be able to keep up with the payments, unlike when you take one larger long-term loan.
The Bottom Line
Can you get a loan if you already have another one? It is possible to be approved for another loan. As we have seen, your debt to income ratio plays a significant role in this regard. However, it might not be an appropriate thing to do. There are several ways in which another loan can affect you. But in case you need a loan, check this website to borrow money online.