A personal loan is a great financial instrument for managing planned and unplanned expenses. Whether you are planning to splurge on gifts for the upcoming festive season, or have a major house renovation planned before your pay-hike, or you lost your phone and have to get a new one in a rush. For all such scenarios, you don’t have to limit your expenses to your monthly income anymore.

Furthermore, with personal loan interest rates going down and personal loan eligibility criteria getting more relaxed, it’s easy personal finance that’s always within your reach. But does that mean that you should take out multiple personal loans whenever you have to manage a major expense?

And can you even get a second personal loan while one is already ongoing? Well, as it turns out, you can apply for and avail a second personal loan while having an active loan. However, there are some things that you must assess before making such a move. Here’s all you need to know before availing of a second personal loan:

Selecting the Personal Loan Lender

To begin with, if you already have a personal loan, the easiest way to avail a second personal loan is by approaching your existing lender. As they would have already checked your personal loan eligibility and done a credit risk assessment, they will process your application and issue the loan with minimal difficulties.

At the same time, as you may already have paid back some instalments of your first personal loan, your existing lender would have a good estimate of your creditworthiness. But, if you find better personal loan interest rates being offered by another lender, or more relaxed payment terms, then it’s better to avail of the second personal loan from a different lender.

Credit History and Impact on Credit Score

Your credit history indicates to a lender how regularly you have paid off past loans and bills and what is your risk of defaulting on the loan. If your creditworthiness is lower than desirable, you will find it hard to avail a second personal loan. Or, if you would get it, it might come at a higher interest rate.

Also, having multiple loans at the same time can affect your credit score negatively. If it goes below 700, you may find it very difficult to take any kind of loan in the future. Thus, before you apply for a second loan, you must give a thought to its impact on your creditworthiness.

Repayment Capacity

As you are already paying off your first personal loan, a percentage of your income is allocated towards debt repayment. From a lender’s perspective, this affects your overall repayment capacity and can make you a less desirable candidate for extending a personal loan.

So, to avoid getting your application for a second personal loan rejected, use a personal loan EMI calculator and determine your outgo every month. If the combined EMIs of both your loans are less than 40% of your monthly income, your Debt-Income ratio will remain low and you can easily avail of the second loan.

Costs and Fees

While the personal loan EMI calculator can tell you how much principal and interest you will have to repay during the loan tenure, there are other costs that you should also consider. A second personal loan, even from the same lender, would still attract processing fees.

There may also be other fees, such as late payment fees, pre-payment fees, etc., which can affect the overall cost of the loan. Thus, before applying for the second personal loan, you must check all the potential costs that you will have to bear to repay it.

Conclusion

In the end, a closer look at all these factors can completely prepare you for availing of a second personal loan. But while it’s completely viable to do so, lenders often discourage it and provide alternatives such as a top-up loan on your existing personal loan. Before applying, therefore, you must assess all financial possibilities and only then proceed.

(India CSR)