How many personal loans can you have at once?

• Increased DTI ratio: Most personal loans come with terms no longer than five years. Multiple personal loans will naturally increase your DTI ratio which could make it hard to qualify for other installment loans to purchase a home or auto.

• No monthly payment flexibility. There’s no minimum monthly payment option like you’ll find with credit cards. You receive all of your funds at once and are required to pay the monthly payments on schedule until the loan is paid off.

• Temporary drop in credit scores. If you apply for multiple loans in a short period, your score could drop more than if you applied for only one loan. Each loan requires a hard credit inquiry.

• Potentially higher interest: Personal loan rates can range between just under seven percent to over 35 percent. If your credit score is fair or bad, you could easily be looking at double-digit bad credit personal loan rates as high or higher than credit cards.

Multiple personal loans can be a useful tool if you have very specific goals for them. They give you the predictability of knowing exactly what your monthly payment will be, and how many years it will take to pay the loan off in full.

• Predictable payment budgeting. Personal loans force you to budget for the amount you need and the monthly payment before you take them out. You may spend less on that vacation, inventory order or wedding if you know what the fixed monthly payment looks like in advance.

• Accomplish multiple financial goals. There are very few restrictions on what you can do with multiple personal loans. For example, you could use a personal loan for debt consolidation to pay off high-interest-rate credit cards and a second personal loan to spread out the payments on a new set of tires.

• Improve your score by avoiding revolving debt. One major drawback to carrying revolving debt like credit cards is the damage it can do to your credit utilization ratio. Personal loans are installment loans, and using them instead of credit cards could improve your credit score and force you to consider whether you really want to finance something if it comes with a regular fixed monthly payment.

Learn more: How to compare installment loan lenders

Taking out multiple personal loans makes sense if it’s part of a broader financial plan. It can help you spread out the payments on major purchases, so that you don’t deplete or reduce money you’re putting into emergency savings, retirement accounts or other wealth-building goals.

However, if you find yourself taking out additional personal loans to pay basic expenses or repeatedly consolidate credit cards, it may be time to pause and do a budget review. The ultimate goal should always be to have enough income and assets to meet your financial needs and use debt as a tool toward that goal.

Having more than one personal loan can impact your credit score in both good and bad ways. For instance, every time you apply for a new loan, a hard inquiry is conducted on your credit report, which will temporarily lower your score.

However, if you have multiple personal loans that you manage responsibly, consistently repaying them on time each month, it can improve your credit score. That’s because payment history is the most significant factor for your credit score. If you miss loan payments, it can have the opposite effect and drive your score down.

Expert take from the author

When possible, qualify for debt based on one primary source of income, especially if you’re are opting for installment debt.

When the pandemic hit New York City, the area I lived in with my family became very unsafe. We planned to relocate across the country, and we used mostly credit cards to cover the expenses.

I wanted to consolidate some credit card debt after we completed the move, and I also needed to cover some repair expenses on my car. I took out two personal loans with the same company. My wife and I qualified based on our joint income.

Shortly after, a family member became ill, and my wife had to care for her for a few months. During that time, the secondary income dropped to zero.

The lack of flexibility with the payments on two short-term personal loans put a strain on our finances, and I realized this valuable lesson.

Denny Ceizyk, former senior loans writer for Bankrate

Lenders consider the same basic credit requirements as when you applied the first time. That means you’ll need a good credit score, stable income and an acceptable DTI ratio to qualify.

However, you may run into some extra requirements if you apply for a second loan with the same lender.

• Payment history: Lenders may require that you make payments on time for a set number of months before they offer you a new loan. If this is required, you can typically expect to wait three to 12 months before you can apply for a second loan.

• Payoff restrictions: If you want to use a new loan to pay off a higher-rate existing loan with the same lender, you may want to check to see if the lender allows that. Some lenders (like LightStream) won’t let you pay off or refinance a loan with a new LightStream loan.

• Combined loan caps: Your borrowing power may be limited if you apply for more than one loan with a specific lender. If you need more than the total amount allowed, you may need to apply for the funds from a different company.

• Credit cards

  Credit cards are a type of revolving credit that allow you to use, pay off and re-use your available credit as needed. Your payment is only based on the amount of credit you use, rather than a fixed payment schedule. Some cards come with benefits you won’t get from a personal loan, but the drawback is high annual percentage rates (APRs). If you don’t pay the statement balance in full, you may have to pay a substantial amount of interest.

  A secured credit card could also be an option if your bad credit makes it hard to qualify for a traditional unsecured credit card. Secured cards require you to put down a deposit that typically becomes your credit limit. While they often carry high interest rates, using one responsibly can help you cover short-term expenses and gradually rebuild your credit score.

• Personal lines of credit

  Lines of credit are similar to credit cards, without the grace period. You have a credit limit, pay interest on what you borrow, then have access to the funds again after you repay. These are best for larger expenses that aren’t set in stone, like home renovations. They offer the same large amount as a personal loan without the strict monthly payment structure.

• Home equity products

  Homeowners with significant amounts of equity often consider converting that equity to cash with cash-out refinances, home equity loans or home equity lines of credit. The biggest drawback to any type of loan secured by your home is the risk of losing your home to foreclosure if you can’t repay it. Most personal loans are unsecured, which means you don’t risk losing your shelter if you fall on hard financial times.

• Help from family or friends

  Another alternative to taking out multiple personal loans is borrowing from people you know and trust. A loan from a close friend or family member won’t come with an application, a credit check or high interest rates, but it still requires careful planning.

  If you pursue this route, treat it like a formal loan agreement: put repayment terms in writing, decide on a schedule and follow through. Doing so can help you avoid misunderstandings and protect your personal relationship while still getting the funds you need.

• Nonprofit or government assistance

  You may qualify for support from government programs or nonprofit organizations. These can take the form of emergency grants, rental assistance, home repair, food programs or temporary cash aid. While the application process can take time and may require proof of hardship, this type of aid doesn’t come with the high interest rates or fees of a bad credit loan.

It is possible to have multiple installment loans, but it’s always best to consider why you need more than one first. If each loan is part of a proactive financial plan that includes specific short-term and long-term savings goals, then it probably makes sense.

However, if you find yourself taking out personal loans to consolidate credit card debt on a regular basis, or to keep the lights on, it may be time to get some financial help from a credit counselor.