Have you borrowed some money recently but the new needs appeared? In this case, you are probably thinking about another loan. In case you wonder, if it is even possible, the answer is yes.
In fact, taking out a second loan while you are still paying the first one is more common than it may seem. According to the data, given by the Wall Street Journal, loan stacking increased twice for two years. However, the increasing number of multiple loans does not mean it is a good idea. Here is some important information about applying for multiple loans and its consequences.
What Are the Requirements for Having Multiple Loans?
In theory, anyone can take more than one loan. There is no rule that forbids applying for several loans at the same time. However, everything depends on the lender’s requirements. Some lenders are strongly against having two loans at the same time. Others allow it but they are likely to have some special requirements. While you are looking for best online loans, be ready to face the following conditions.
- Waiting Period. Some lenders require waiting for several months before applying for a new loan. If your loan is recent and you are taking another one it may seem suspicious. A waiting period allows a lender to see how you repay your first loan and make a decision;
- Partial Repayment. Partial repayment of the first loan may be also required. If you already returned 40-60% of your first loan and the payments are consistent, you may be eligible for a second loan. A lender will have a guarantee that you can manage your finances and handle more than one active loan;
- Loan Amount Limit. A lender may not be against multiple loans if the total amount does not exceed a certain amount. The loan limit depends on a lender and may be around 40 thousand dollars.
Apart from these requirements, a lender may also check your credit score, repayment capacity, and the debts that were already repaid. Lender’s decision may also depend on a type of loan that you already have.
Can You Apply for Multiple Loans At Once?
Applying for multiple loans can also happen when a borrower wants to find the best option. You compare a few offers and choose the one with the best terms. While it is reasonable, it may hurt your credit score.
What Are Hard Inquires?
Credit checks that are made when you apply for loans are called hard inquiries. As they are 10 percent of your credit score, a large number of such checks can damage it. They also remain on your credit report for two years.
In order to avoid hard inquiries, you may use a preapproval application to compare the loan terms. It usually gives all the necessary details about a possible future loan. You may calculate interest rate and decide if the offer is good. A soft credit check is used during this procedure. Thus, there will not be any impact on your credit score.
It is clear for the lenders when you just look for the best offer. In this case, you probably apply to different companies for the same amount of money during a short period of time. Rate shopping usually lasts from 14 to 45 days. Hard inquiries made during this period are counted as one.
The Risks of Taking Several Loans At Once
Taking out several loans might seem like a great idea but you need to be aware of possible risks. Here are the disadvantages of having multiple loans that you may experience.
- Overborrowing. Several loans will give you more funds but it also means that you will have to make more repayments every month. Before borrowing more, make sure that your budget allows it. If you are not able to make consistent monthly repayments, another loan will only drag you deeper into debts. You should also remember that your financial situation may change but the loans will not go anywhere. Think through a back plan for sudden financial changes;
- Credit Score Damage. As it was already mentioned, every loan application presumes hard inquiries that lower your credit score. The more loans you take, the more you damage your credit score. With every next loan, your debt-to-income ratio lowers and you become a high-risk candidate. It decreases your chances to get a loan with a good interest rate in the future. Damaged credit score and multiple loans can make lenders question your ability to repay the debts;
- Debt Cycle. The lenders will not approve you for a loan that you cannot repay but only you know the real situation. The first loan is usually taken to cover some major expenses like a wedding day or an important trip. Then some other sudden expenses may appear and you decide to take a second loan. Eventually, you realize that you borrow again just to cover everyday expenses like food and electricity bills. If this is the case, you may be dragged into a debt cycle and become dependent on loans. Be honest with yourself about your financial situation to avoid this unpleasant consequence of multiple loans.
Taking out several loans is possible and quite common. Some loans do not even require having a bank account to get approved. However, you should remember about possible consequences. Take several loans, only if you are sure that it will bring more solutions than troubles.
Does a Credit Score Impact Your Loan’s Eligibility?
Actually, it is not so important in case of getting unsecured loans. 3-month payday loans bad credit is principally possible. But there is something you need to take into consideration – the interest rate. With a bad credit score, it will cost you more in fees and interest rate. However, if you are able to pay it off earlier, it will positively reflect your credit score. Hence, when you decide on taking out another loan, you will have a better credit score.
3-month payday loans always come with much higher interest rates which are dictated by their short payments periods. On the contrary, the conventional payday loans have lower interest rates and you can pay in small regular monthly payments.