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Should You Take Multiple Loans to Pay Other Loan?

Should You Take Multiple Loans to Pay Other Loan?

Personal loans are growing fast in India, and a large number of people borrow loans for various reasons. People are borrowing multiple personal loans to pay other loans, but should they? The answer is yes and no. Yes, because interest rates on personal loans are much lower than other types of loans, and they will help you settle your bills. No, because there's always a risk if the borrower doesn't pay their loan on time or cannot make payments. If the borrower fails to pay the money, they could be left with a huge debt hanging over their heads. The trick is to be financially responsible.

If you are facing debt challenges, you're not alone. So many of us find it difficult to manage our finances and take multiple loans to pay for one huge loan they borrowed. While this might seem like an easy way out to everyone, some risks are involved. If you take multiple loans, you might end up paying more than you borrowed or end up in so much debt. You could even lose your home or an essential asset due to all the debt.

Is It Good to Take Multiple Loans to Pay Other Loan?

Multiple loans can be a good option if it is done responsibly. It's important to only borrow what you can pay back in the short term. If you do take multiple loans, be sure to set up a repayment plan to assist you in planning how you will repay. Many financial experts suggest that it's a must you borrow multiple loans and consider your income. If you have enough income to pay off the multiple loans, you can borrow the loans to pay for other debts. But if not, don't try because you will end up deep in debt, which might affect your credit score. This is something we don't want either.

Why You Should Not Take Multiple Personal Loans?

This is a question that many people ask more often and with good reason. Many people take out multiple loans to settle their other debts, but this can leave them in trouble. Let's say you take out a loan to pay off the mortgage you borrowed for your house, but then you take out another loan to pay for your student loan and credit cards.

4 Reasons You Shouldn't Take Multiple Loans

1. You Could Fall Deeper into Debt

People often borrow more than they can pay back, which can lead to the accrual of debt. According to research, the average credit card debt for those with a history of repaying at least one loan was INR 4,400 some years back. If you take out multiple loans, what happens is that you'll have more than one loan coming due at the same time, and even if you can pay off some of your debts, others might take a long time to be repaid in full.

Research has also found that consumers who took out a high number of loans had an average debt-to-income ratio of 40% a much higher percentage than those with only one loan.

2. You might have to Pay More than the Money you Borrowed

Using multiple loans to repay past loans isn't a great idea. If you fail to repay the loans on time, you'll be charged some fees, which are generally higher. While interest rates are usually lower when you're borrowing multiple loans, the fees you pay could be much higher than what you borrowed.

3. Your Credit Score Could Be Affected

A credit score is basically a way of measuring your financial health. This score could be affected if you fail to pay your loans on time. Besides, your credit score will also be affected if you take multiple loans to pay your other loans, in addition to the fact that your money is being used for so many other things.

Credit bureaus look at how much you owe and the length of time you take to repay your debts. The information gathered from this is used to calculate a credit score, which lenders often use to offer loans.

Each time you apply for a loan, the lender conducts a hard inquiry, which normally causes a drop in your credit score. If you borrow money over and over again, your credit score will start falling. This can make it difficult to get access to other forms of credit in the future.

4. There Might Be Interest & Fees That You Don't See

You shouldn't take out multiple loans, as this can lead to additional interest and fees. If you borrow money for an emergency, you may find that additional costs are being added to your loan, like late fees.

When Should You Consider Multiple Loans?

This really depends on your situation. If you have an emergency and need to borrow money quickly, taking multiple personal loans could be an option for you. But is taking multiple loans the best way to resolve your financial issues? Probably not. Finding ways to save money or increase your income is probably a better option.

Often, personal loans are cheaper than other types of loans. You might be able to borrow a huge amount at a lower rate of interest, but let us tell you that taking multiple loans is risky and dangerous.

If you have good credit history and you have a reasonable income, then taking multiple loans isn't that big of an issue. It is important that you can pay back the loan without having much trouble. Also, if you have a good credit history, you can easily take out multiple loans.

If you are in need of urgent funds to settle your debt, then multiple personal loans could be an option for you. After all, taking out more than one loan is often cheaper than taking out one huge loan. But when dealing with multiple personal loans, be sure to plan on how you will pay back the loan. Also, consider the interest rates and additional fees that come with multiple personal loans before applying for them.

Conclusion

If you're thinking about taking multiple loans, then think twice. Having too many loans isn't good at all. How about if you borrow money for your business, then for your personal expenses, and so on? So, it's best to stick to one loan at a time. If you have too many loans from different creditors and banks, then you'll have to worry about which one of them is going to let you go down your debt. Make sure that you manage your finances properly so that, no matter how hard times are, everything is going well for you.

Multiple loans can sound like an easy solution, but if you take multiple loans to pay off other loans and are unable to repay them all at once, you could end up losing everything you own. The most important thing to remember is not to borrow more than you can afford to pay off. This guide should help you better understand if you should take multiple loans to pay off other debts. Whether you take one or two loans, take care not to go into debt over your head. Finally, let us tell you that most of the time, people are only able to repay their debt from one loan and not from more than one. So if you have a lot of loans, just try to repay them on time.

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