Whether you urgently need funds to sustain your business’s operations or do not have enough money to pay a major medical bill, getting a loan can solve myriad problems. And thanks to the large number of financial institutions in the country today, interest rates are attractive, tenures are flexible and loan processing is smooth too.
However, if you avail
multiple loans for different needs, but cannot make timely repayments, you might end up in a never-ending debt cycle.
So, though it is easy to take multiple loans for almost everything, from buying a car or house to taking that world trip, weigh the pros and cons carefully.
Also Read: Choosing between Short term and Long term loans Multiple loans pros - Quick and easy access to funds – Since loans get approved and disbursed quickly these days, you get the flexibility you need to meet emergencies or accomplish dreams. Plus, loans that are personal in nature can be used any way you wish.
- Financial security – Taking multiple loans means having different funding sources. This way, you do not have to worry if you fall short of money for one purpose. You can easily supplement it with another loan.
- Rapid improvement of credit score – Taking a single loan and paying it back on time will indeed boost your credit score, but it will take time. On the other hand, applying for multiple loans at once and repaying them as per deadlines means your score will shoot up faster. This, in turn, will make you more eligible for future loans.
- No need to prioritize dreams – By taking more than one loan, you can buy your favourite car and go for that Europe trip or buy a house and throw a lavish wedding for your son or daughter, at the same time. So, there is no need to choose.
Also Read: Secured V/S Unsecured Loans - Which Loan Is Right For You? Cons of taking Multiple loans - Constant mental pressure – Applying for too many loans means worrying constantly about how you will pay them back. In case you default on a secured loan (where you pledge collateral), there is an additional worry about losing your asset to the lender.
- Too many EMIs and too little savings – Repaying multiple loans means managing multiple EMIs, which exerts pressure on your monthly income and budget. It becomes difficult to save enough money or undertake investments.
- Defaulting affects credit-worthiness – If you default on even a single loan, it will reflect poorly on your repayment ability and negatively impact your credit score. Not only will you have to pay late fees, but your probability of getting a loan in the future will also decrease.
Also Read: Merchant Cash Advance V/S Business Loan : Which Is Better? Tips to handle multiple loans efficiently After going through the pros and cons, if you decide to take multiple loans, follow these tips:
- Avail more than one loan only if you absolutely need it and there is no other option.
- Assess if you have the financial capability to manage multiple loans at the same time and if your monthly income and budget allow it.
- Compare lenders and loans carefully before going with one, so that you can get the best deal in terms of interest rate and tenure. However, note that a longer tenure means a higher total interest cost. So, if possible, go for a short tenure.
- Repay all EMIs on time and monitor your credit score regularly. If a loan appears to be too burdensome, see if you can find a similar loan with better terms. You can also consolidate all loans into one for easier repayment.
So, hopefully, you are now in a position to make an informed decision. Go for more than one loan only if you actually need them and are confident that you will be able to repay all of them in a timely manner. Remember the pros and cons of multiple loans before taking a call and follow the tips mentioned above for managing the loans intelligently. This will prevent defaults and boost your credit history the way you want.
