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Taking out a personal loan can be a guessing game. You might have an idea of ​​how much you need, but that may change soon after you sign on the dotted line. Whether you need more money to complete your home renovation or face additional medical expenses, you may be wondering if taking out an additional personal loan is a viable option.

While there is usually no limit to the number of personal loans you can open overall, lenders usually set their own restrictions. We will explain the ins and outs of several personal loans below.

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

The number of personal loans that you can have with a lender depends on the specific limits of the business. Some allow clients to have multiple loans while others limit you to just one. It can also depend on your credit score, work history, income, and other loans.

Risks of opening several personal loans

  • Difficult to manage : The danger of having multiple personal loans is that you may have a hard time keeping up with the payments. If you miss a payment or pay late, you can seriously damage your credit score.
  • May increase your DTI: Having multiple loans can also increase your debt-to-income ratio (DTI), which could make it more difficult to qualify for a mortgage or other loan. This could result in a higher interest rate on a mortgage than if you only had one loan. The maximum authorized DTI is 43%, including your future mortgage payment. Having multiple personal loans could push him to the limit and disqualify you.
  • Requires several concrete requests: When you apply for a personal loan, your lender will perform a rigorous credit check, which can hurt your credit rating by anywhere from one to five points for a year. This means that applying for several loans in a short period of time can significantly damage your credit score.

When is it a good idea to open multiple personal loans?

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

How to manage multiple personal loans

If you have multiple personal loans, the key is never to miss a payment. Paying late will incur additional charges and damage 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 a payment, you may also owe the bank late fees. You can also use your bank’s bill payment feature to send payments, but it is better to use the lender’s system.

Set a calendar reminder to verify that payments have been made. And if you ever change banks, be sure to change your automatic payment information.

Alternatives to personal loans

Personal loans aren’t the only way to get money when you need it. Here are other common options:

Cash advance by credit card

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 percentage rates for cash advances (APRs) can reach 36%. Suppliers 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. The available credit limit is your total credit limit less the ongoing 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 regular credit card transaction, cash advances will earn interest as soon as you withdraw the money.

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

Home equity loan or line of credit

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

When you take out a home equity loan, you receive a lump sum that you can use to pay off debt, complete your home improvement, or take a vacation. A HELOC is a line of credit that allows you to draw down up to a certain amount. You can repay this amount and then draw on the HELOC again.

Interest rates are often lower than for personal loans because the lender can use the house as collateral. If you don’t pay off the loan, they can repossess your home. This is also what makes home equity loans and HELOCs riskier than a personal loan. If you default on a personal loan, the bank can’t come after your home because most are unsecured.

0% APR Credit Card

If you have good credit, you can qualify for a credit card with a 0% APR offer. These specials typically last between six and 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 owed each month. If you miss a payment, the company can cancel the offer at 0%.

At the end of the special offer, the interest rate will change to a predetermined rate. If you still have a balance, you will owe interest on that amount. But if you can afford to pay off the balance before the 0% rate expires, you will save a lot on interest.

401 (k) Loan

If you have a 401 (k) from a current employer, you can take out a loan against the balance. You can borrow up to $ 10,000 or 50% of your acquired 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 into your account.

Most 401 (k) loans have a term of five years, but if you lose your job or quit, you will need to pay off the remaining balance within 90 days. If you don’t, the unpaid amount will be treated as an early withdrawal. In this case, you may have to pay taxes and a 10% penalty.

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