Should You Have More Than One Personal Loan?

April 27, 2021

While you have to factor in things like fees and interest, personal loans – when they’re treated correctly – can be pretty handy indeed. They let you borrow money to put towards pretty much anything, which you then repay over a period that suits you. Once you’ve paid back what you owe, the lender closes your account and you (potentially) walk away with a higher credit score than you had when you were first approved for the loan.

While you have to factor in things like fees and interest, personal loans – when they’re treated correctly – can be pretty handy indeed. They let you borrow money to put towards pretty much anything, which you then repay over a period that suits you. Once you’ve paid back what you owe, the lender closes your account and you (potentially) walk away with a higher credit score than you had when you were first approved for the loan.

But what happens if you need to apply for a second personal loan while you’re still paying off your first? Is it even possible to have more than one personal loan on the go at once? In short, yes, but that doesn’t mean it’s a good idea for every borrower.

In this post we’ll look at why you may be considering applying for a second – or even third – personal loan, and what the potential consequences are of doing so. From there, we’ll check out what you’ll need to think about before you apply, and how to cope once you’ve been approved. Worried you may struggle with multiple personal loans? We run through the various signs to look out for.

Why Apply For More Than One Personal Loan?

So, you have one personal loan. What possible reasons could you have for taking out another?

When you want to take advantage of different types of loan

Personal loans aren’t just one-size-fits-all. There are lots of different types of personal loans designed to suit different types of spending. You may have taken out one type of personal loan to pay for a holiday, for example, and now you want to take out another personal loan to buy a car.

With that in mind, let’s check out the different types of personal loans, and what they’re often used for.

  • Secured Personal Loans. When you apply for a secured personal loan, you secure the loan against an asset, such as your home, or a car you’re looking to buy. With collateral placed against the loan, this lowers the risk for the lender, which often results in lower rates and easier approval than unsecured loans. Depending on the lender, some secured loans may only be used for car purchases, while others can be used for almost anything.
  • Unsecured Personal Loans. With an unsecured personal loan, you don’t have to put up an asset as collateral. This may suit you if you don’t have an asset worthy of securing the loan, or you don’t want to risk losing a valuable asset if your situation changes and you can’t repay the loan. Unsecured personal loans typically offer plenty of flexibility, and most can be used for any purpose.
  • Variable Personal Loans. With a variable personal loan, the rate you pay may change over the life of the loan. If you think rates may fall as you repay your loan, choosing a variable loan option could allow you to take advantage of that. Similarly, if you want more flexibility in your loan – including the ability to repay your loan early or make extra repayments – a variable loan may be a more appealing option.
  • Fixed Personal Loans. When you have a fixed personal loan, the rate on your loan is fixed throughout the loan period. This can make it a great option if you want to know exactly how much you need to set aside for your repayments each month. However, fixed loans can come with high break costs if you choose to repay early.
  • Car Loans. Car loans are essentially personal loans designed to help you purchase a car. More often than not, they are secured against the car you buy. This allows you to take advantage of lower rates. You may also choose to put down a deposit on your car to lower the overall amount owed on the loan, creating a more affordable repayment schedule.
  • Green Personal Loans. Green personal loans can be used to fund ‘green’ purchases. You may choose to apply for a green loan to cover the cost of installing solar panels, or perhaps to buy a hybrid or electric car. Green personal loans generally offer lower rates and fees than standard personal loans, which can help you to save as you make your life greener.

To find out more about green personal loans, check out our blog post, here.

When you need to access more funds

If your financial situation has changed, you may now need to access more funds. You’ve already spent the amount you borrowed on your original loan – and are currently working on paying it back – so now you need to borrow more to cover another project or purchase.

Perhaps you took out your first loan to carry out a renovation project at home. The project is now almost complete, but you need to borrow more to get it finished. Alternatively, you could need to borrow more because something unexpected happened during the renovation process, significantly increasing the overall cost of getting it done.

Or maybe you took out your first loan to cover one type of purchase, and now you’re wanting to pay for something else. As an example, you may have borrowed money initially to cover the cost of your wedding, and now you’re planning a getaway to celebrate your anniversary.

Unexpected costs can also come into play. Maybe you’ve got major dental work coming up, or the dog swallowed something it shouldn’t and now needs expensive surgery. Perhaps the boiler exploded and now you need a whole new hot water system. If you don’t have the money to cover it, you may be considering a second personal loan to ease the burden.

When you find a great deal

If you’ve been paying off your personal loan for a while now, you may find you can get a much better deal on a personal loan today, than you got when you first applied. Perhaps rates have fallen significantly, and you either have a fixed rate loan, or your variable rate loan hasn’t kept pace with what’s available elsewhere in the market.

Or maybe your own situation has improved. You now have a better job with more income coming in – and you’ve managed to improve your credit score by lowering your debts and making your repayments on time.

Whatever the reason, you could now apply for a personal loan at a much lower cost than when you applied for your current personal loan all those years ago. Depending on your situation, you may choose to keep both the new loan and the original loan, if say, the break costs would be too high to pay it off early, or if you only have a small amount to pay back.

Alternatively, you may choose to use the new loan to repay the old loan. This technically counts as refinancing, rather than holding multiple personal loans. You can find out more about the pros and cons of refinancing your personal loan in this blog post. [Add link when you publish that feature]

When you want to consolidate debt

With that in mind, you may choose to apply for a new personal loan to consolidate debt. While this does provide the option of rolling all your current debts (including your original personal loan) into a new personal loan, there may be instances when it makes sense to keep your original loan and the new debt consolidation loan.

As an example, you may have a secured car loan and a number of credit cards with balances owing. You could keep your secured car loan because it already has a low rate, to then apply for another personal loan to consolidate your credit card debt. Credit cards typically have a much higher interest rate than personal loans, so you could save on interest by applying for a loan with a lower rate to pay off what you owe on your cards.

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Consequences of Having Multiple Personal Loans

While there are plenty of valid reasons for applying for a second personal loan, there are consequences to having multiple personal loans that you may want to consider before you apply.

More Fees

Most personal loans come with fees, either in the form of establishment fees that you pay when you apply, or ongoing fees that you pay on a regular basis as you repay your loan. Some personal loans charge both establishment fees and ongoing fees, while others charge just one or the other.

Either way, having multiple personal loans on the go will mean you have to cover multiple fees. This will increase your outgoings, so it’s important to factor in those additional costs when weighing up whether or not you can afford to pay off two personal loans at one time.

More Interest

When you are approved for a personal loan, you are assigned a rate by the lender depending on factors such as the loan amount, loan term and your creditworthiness. That rate will either be fixed through the life of the loan, or it may fall and rise in line with the market, as determined by your lender.

With one personal loan, you have to repay the amount borrowed, plus interest applied by the lender. With two personal loans, you will have two repayments – both with interest applied – which will obviously increase the amount you have to pay out.

Not only that though, when you apply for your second personal loan, you may find you pay a higher rate as a result of your ‘higher risk’ status. Why? On your first application, you had less debt and lower outgoings, so you were given a lower rate. Now, when you apply, you have more debt and higher outgoings, which may result in a higher rate on your new loan.

Reduced Choice

While some personal loan providers are happy enough to lend to applicants who are currently paying off a personal loan, others may not be. You may find your choice of personal loans is diminished as a result of you still paying off your original loan, which could mean it’s more difficult to find a loan and lender that suits you – and your budget.

Lowered Credit Score

Let’s say you have an unsecured personal loan and a secured car loan on the go already. You now want to apply for another personal loan. The trouble is, you may find your credit has taken a hit, either as a result of you making multiple applications, or because you seem like you’re ‘desperate’ for credit and can’t manage your finances effectively.

You may want to consider the need for another loan if your credit score isn’t looking too healthy, especially if you’re thinking about applying for a more significant loan in the future, for example, if you will be buying a house and will need a home loan.

Organisational Issues

When you borrow money, whether that’s as a personal loan or home loan, as a credit card or even hire purchase, you need to make sure you keep on top of that debt, tracking your account and always making your repayments by the due date.

If you’re a super organised person, this should all come pretty easy to you. On the other hand, if you struggle with the day-to-day organisation of your finances, adding another personal loan to your load may not be the best idea.

Stretched Budget

While we touched on the increased costs associated with having multiple personal loans in the sections on fees and interest above, it’s worth making a specific point on how having more than one personal loan can affect your budget.

With two personal loans, you will have two repayments to cover. As a result, you’ll need to make sure you have enough coming in to cover those increased outgoings, while also allowing for stretch in your budget should your repayments increase after rates rise on your loans.

Paying out more on repayments each month may also mean you have less to spend on luxuries, which could alter your lifestyle. Or it may mean you have less to put towards savings. Building savings is ever-important, and could reduce the need for you to apply for personal loans and other credit products in the future.

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Applying for Another Loan

Still think a second personal loan is the right choice for you? You’ll need to know what to look for as you compare your options.

  • Eligibility: First up, check you’re eligible. Only look at personal loans you know you can apply for when you already have a personal loan. This should help narrow your options, while avoiding wasting time on loans you can’t actually apply for.
  • Cost: Many lenders allow you to apply for preapproval, which will give you an indicative rate on your loan. From there, you can add on the cost of fees, to compare the cost of each loan option. Using a personal loan calculator can help you compare options in this way, while also making it easier to work out how long you will need on your loan term to create an affordable repayment schedule.
  • Flexibility: Some personal loans offer more flexibility than others. You may find variable rate options tend to provide more flexible features than fixed rate loans, but this will depend on the lender. Flexible features can come at a higher cost, but consider their ability to save you in the long run (for example, if you want to pay off your loan early to save on interest).
TIP: Check your credit score before you apply for a loan. It’s best to check your credit report with each of the three main credit reporting agencies, as you won’t know which agency the lender will access to check your credit when you apply. You can apply to have any errors corrected with the reporting agency before applying for a loan.
Common banking mistakes

Tips for Managing Multiple Personal Loans

Want to know how to manage multiple personal loans? Stay on top of your debts – rather than letting them get on top of you – with these tips.

Find the best deal

First up, find the best deal on your personal loan. Don’t apply for a loan that you either won’t be able to manage financially, or that isn’t suited to your needs.

Organise yourself

As soon as you sign that loan contract, it’s time to get organised. If you have a number of personal loans on the go, it might help to create a spreadsheet detailing repayment amounts, repayment dates, and your method of repayment. Include info on features, such as the ability to make extra repayments and access redraw.

Set up a direct debit

Avoid missing repayments by setting up a direct debit on your loan repayments. This can help you avoid late fees, and hits to your credit score. Just make sure you have the funds available in your account to cover your repayments when they’re due. Setting a reminder on your phone should help with that.

TIP: You can often choose the repayment date and frequency on your loan. Set up a repayment schedule that you can afford, either by arranging your repayments to come out near payday, or by spacing your repayments through the month to give yourself some breathing space.

Make extra repayments

If your loan allows for it, you may want to consider making extra repayments when you can. Obviously don’t leave yourself short elsewhere as a result! By making extra repayments, you could reduce the amount of interest you pay on your loan, to then pay off your loan faster. If your loan offers redraw, you can access those extra repayments in future.

Build up an emergency fund

If you can’t make extra repayments on your loan, you may want to build an emergency fund on the side. As long as your budget allows, you can add to this savings fund, accessing it later to make your repayments during lean months. Building savings can also help to improve your chances of getting approved for credit in the future.

Recognise when you’re not coping

If you’re struggling as a result of having more than one personal loan, it pays to seek help sooner rather than later. Don’t wait until you’re missing repayments and getting hit with fees to do something about your situation. With that in mind, let’s look at four of the biggest signs you’re not coping with multiple personal loans.

4 Signs You’re Not Coping

  • You’re missing repayments. If you’re regularly missing repayments, either because you forget about them or you don’t have the money to cover them, this is a big red flag.
  • You’re paying out in fees. When you miss repayments, you’ll get hit with late fees. If you have a direct debit set up, but don’t have funds available, you’ll have to pay missed payment fees. Paying out fees on a regular basis will make your loan even more difficult to repay, while also making your life more stressful.
  • Your credit score has taken a hit. Missed repayments can knock your credit. Repayments that remain unpaid for more than 14 days will be reported as a late payment, while repayments of more than $150 that remain unpaid for 60 days or more will be recorded as a default. Having these kinds of black marks on your credit report will make it harder to get approved for credit in the future.
  • You’re feeling overwhelmed. Dealing with multiple debts can be stressful. Unless you’re organised – and have the funds to cover each and every repayment – it can be easy to get overwhelmed by your debt. If you’re feeling stressed dealing with your loans, you may need to rethink your situation.

If you experience any of these issues, face it head on before the problem grows. You can call the National Debt Helpline on 1800 007 007 to get free advice on how to manage your debts. The NDH website also holds a wealth of information on how to deal with debt problems, covering everything from debt solutions to complex situations, and even your rights as a borrower.

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