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How Much Personal Loans Can You Take Out? – Forbes advisor

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Getting a personal loan can be a guessing game. You may have an idea of ​​how much money you will need, but that may change shortly after you sign on the dashed line. Whether you need more cash to complete a home remodel or deal with additional medical expenses, you may be wondering whether taking out an additional personal loan is a viable solution.

While there is usually no limit to how many personal loans You can open it altogether, lenders usually set their own limits. We’ll walk you through this and the pros and cons of several personal loans below.

How Much Personal Loans Can You Get From One Lender At One Time?

The number of personal loans you can have with a lender depends on the company’s specific restrictions. Some allow customers to have multiple loans while others limit you to one. It may also depend on your creditworthiness, professional history, income, and other loans.

Risks of opening multiple personal loans

  • Difficult to use: The danger of having multiple personal loans is that you may struggle to keep up with payments. Missing a payment or paying late can seriously damage your credit score.
  • Can increase your DTI: Multiple loans can be yours too Debt-Income Ratio (DTI)which could make qualifying for a mortgage or other loan difficult. This can mean that you get a higher interest rate on a mortgage than if you only had one loan. The typical maximum permitted DTI is 43%, including your future mortgage payment. Having multiple personal loans could go over the top and disqualify you.
  • Requires several hard requests: When you apply for a personal loan, your lender does a tough credit check that can take anywhere from one to five points to your creditworthiness for a year. This means that applying for multiple loans in a short amount of time can seriously affect your credit score.

When is it a Good Idea to Open Multiple Personal Loans?

Obtaining a second personal loan can be useful when you need cash, qualify for a low interest rate, and can afford to pay back multiple debts. If you can’t afford to meet your multiple loan monthly payment obligations, your best bet is to look for an alternative option, such as: Family loan.

How to Manage Multiple Personal Loans

When you have multiple personal loans, it’s important not to miss any payment. Late payments will incur additional fees and damage your creditworthiness.

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 every payment. If your bank account fails a payment, you can also owe the bank a late payment fee. You can also use your bank’s billing feature to send payments, but using the lender’s system is preferred.

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

Alternatives to personal loans

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

Credit card cash advance credit

If you need cash, you can withdraw money from your credit card at an ATM. Card companies charge a higher interest rate for cash advances; Annual Cash Advance Percentages (APRs) can be up to 36%. The providers also charge cash advance fees between 3% and 5% of the transaction amount.

The maximum amount that you can borrow is usually between 20% and 30% of the available credit line. The available credit limit is your total credit limit minus any current charges on your account.

For example, if you have a 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 earn interest as soon as you withdraw the money.

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

Home loan or line of credit

A Home equity loan or home equity line of credit (HELOC) you can borrow against them Build equity in your home. You typically need at least 15 to 20% equity to qualify for any of these products.

When you take out a home loan, you get a lump sum that you can use to pay off debt, do a home remodel, or take a vacation. A HELOC is a line of credit that you can use up to a certain amount. You can repay this amount and then withdraw it again from the HELOC.

The interest rates are often lower compared to personal loans because the lender can use the home as collateral. If you default on the loan, they can repossess your home. This makes both home equity loans and HELOCs riskier than a personal loan. If you default on a personal loan, the bank cannot look for your home as most of them are unsecured.

0% APR credit card

If you have good credit, you can apply for one Credit card with a 0% APR offer. These special offers typically last between six and 18 months. During this time, the credit card company will not charge any interest on the balance. You will still have to pay the minimum amount due each month. If you miss a payment, the company can withdraw the 0% offer.

When the special offer ends, the interest rate will be converted to a predetermined interest rate. If you have any credit remaining, you will owe interest on that amount. However, if you can afford to repay the balance before the 0% rate expires, you will save a lot of 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 balance on your 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, interest is added to your account.

Most 401 (k) loans have a term of five years, but if you lose your job or quit, you must repay the balance within 90 days. If you do not do this, the amount not paid will be treated as an advance withdrawal. In this case, you may have to pay tax and a 10% penalty.

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Richard Dement

The author Richard Dement