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You may be able to take out more than one personal loan, but there are good reasons to keep a lid on your loans. We share more.
A personal loan can be a valuable financial tool, potentially giving you the funds to achieve a variety of goals from paying for a wedding, to completing home improvements or taking a much-needed vacation.
The beauty of a personal loan is that the balance is paid off within a set term, often at a fixed interest rate, so repayments are easier to budget for. In addition, personal loans are available through a wide variety of financial institutions including banks, credit unions and building societies – and healthy competition can be a plus for scoring a low interest rate.
Strictly speaking there is no limit on how many personal loans you can have at any one time. It’s really a question of whether you meet each lender’s criteria for a personal loan. The bigger issue is whether you really want to face the challenges of juggling multiple personal loans all at the one time.
How do I qualify for a personal loan?
Each lender will have its own specific criteria in regards to qualifying for a personal loan. As CommBank notes, you will typically need to meet minimum income requirements, be employed or earn a regular income, have a good personal credit rating and not be going through the process of bankruptcy.
How much you plan to borrow can shape your likelihood of being approved for a personal loan – and a number of lenders have online calculators that provide an estimate of your borrowing capacity.
Can you get a loan if you already have one?
Individual lenders may have their own policies about the number of personal loans they offer to the same customer. But that doesn’t mean you can’t apply for a loan with a different lender.
The catch is that banks are required by law to lend responsibly, and your lender will likely want to know about any existing loan commitments whenever you apply for a new personal loan.
If the lender’s analysis of your income and expenses – including repayments on any other personal loans, suggests that extending more credit to you could leave you thinly stretched financially, you may be knocked back for a loan or offered a smaller loan than you initially requested.
How many personal loans can you have at once?
In theory at least, if you meet a lender’s criteria, and your income is sufficient to cover the repayments on multiple personal loans, there is no legal limit on the number of loans you can have. However, there are downsides to having lots of personal loans at once, including potential damage to your credit score and the risk of getting into serious financial trouble if you have unmanageable debt. Our Personal loan repayment calculator can help you understand how much a new loan could cost you.
Possible damage to your credit score
Moneysmart explains that each application you make for a loan can appear on your credit record, and having multiple applications can lower your credit score. This can make it harder to be approved for another personal loan – or something as important as a home loan, with the lender of your choice. Not sure what your credit score is now? You can get your free credit score with Canstar.
The potential to get into trouble with debt
Having multiple personal loans means juggling different repayments dates, various interest rates and dealing with more than one lender, plus multiple sets of statements.
The more loans you have, the easier it can be to lose track or fall behind on your loan repayments, and the Australian Financial Security Authority (AFSA) warns, this could see you caught up in a spiralling debt cycle.
The solution can simply be to limit the number of personal loans you take out. Or, if you already have several different personal loans, it may be worth thinking about debt consolidation. AFSA explains this is where you roll all your existing debts into one new loan, which can help to streamline the loan repayments.
A debt consolidation loan can also help you pocket savings through a lower interest rate or cheaper loan fees than you’re currently paying.
Ultimately, a personal loan can be a handy financial tool. But moderation and getting a good deal in terms of the interest rate and terms and conditions of a loan agreement are important. Sticking to just one or two personal loans can make it easier to manage your money, while also protecting your personal credit score. Canstar’s comparison tables may help you find a personal loan or car loan that’s suitable for your needs.
Cover image source: gemphoto/Shutterstock.com
This content was reviewed by Finance Editor Jessica Pridmore as part of our fact-checking process.
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