Can you get a loan if you already have one?

You may be able to take out more than one personal loan, but there are good reasons to keep a lid on your loans.

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

The Federal Government’s Moneysmart website 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 check your free credit score for free with Canstar.

How do I qualify for a personal loan?

Each lender will have its own specific criteria in regards to qualifying for a personal loan. 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.

Alternatives to taking out a second loan

If you need extra funds for an upcoming expense, there may be some alternatives to taking out another loan that you could consider.

• Use savings: If the expense isn’t urgent, setting aside money over time can help you avoid interest charges and keep your debt levels in check. Using savings may take longer, but it can be the most cost-effective option in the long run.
• Inquire about a redraw facility: If you need funds sooner and have made extra repayments on your home loan, a redraw facility might allow you to access those surplus funds. This can be a convenient option, as home loan interest rates are typically lower than those on personal loans. However, be sure to check your lender’s terms, as some redraws come with fees or minimum withdrawal amounts. Redrawing funds from your home loan can also extend the time it takes to pay off your home loan, which could result in higher interest costs over time.
• Top-up on an existing loan: With personal loans, some lenders may allow you to top up your loan, combining the new amount with your existing balance. This can help you avoid multiple repayments, though approval will depend on your income, credit score, and repayment history. Similarly, if you have a home loan and enough equity, you may be able to top up your home loan to access additional funds. This doesn’t automatically extend your loan term, but it may adjust your repayments depending on how the top-up is structured.

Whichever option you’re considering, take the time to compare the interest rates, fees, and impact on your overall financial position.

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, which 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 that’s suitable for your needs.

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