In North America, there’s more than just one loan. The U.S. and Canadian financial landscapes offer different loans to help borrowers with a variety of life’s goals — and life’s problems!
From mortgages and car financing to personal loans, credit cards, and lines of credit, you have a lot of options when it comes to financing.
You can pick between online or in-person financial institutions. You don’t even have to borrow from a bank now that credit unions, FinTech services, and P2P companies exist today.
How can you pick just one? You usually choose the loan best suited for your needs. After all, mortgages get people on the property ladder.
Vehicle financing helps put cars in driveways. And personal loans online in Canada give borrowers the means to handle unexpected repairs on their cars and homes.
All told, the average Canadian owes almost $75,000 if you include mortgages. Americans, meanwhile, owe a stunning average of $101,915 across all their loan products.
These stats would be hard to achieve by owing just one loan on its own, so, it’s clear that the average person has more than one loan open at one time. But is that safe? Let’s find out.
Having Multiple Loans From Different Lenders
Generally speaking, having more than one loan is normal.
Think about it — the average person might have a mortgage, lease for their car, and at least one credit card in their wallet.
(In fact, the average Canadian has roughly 2 credit cards to their name, while the average American has 4).
Plenty of people take decades to pay off student loans, and many wise strategists keep lines of credit on standby for emergencies.
The exact number of loans you carry isn’t what’s important. Someone who has ten outstanding loans might be in a good financial place, while someone else with just a single cash advance could be skirting danger.
The key factor is affordability. Can you comfortably afford to cover all your debt payments and juggle all your other financial responsibilities?
Some lenders consider this as part of their qualification requirements. They take into account your other debt payments to see if you can realistically add another payment to your plate.
If you fail this test, you might get denied — even if you only have one existing loan. However, if your finances prove you can handle another payment, you might be approved for your fifth loan.
Having Multiple Loans From The Same Lender
Some financial institutions will let you borrow a second personal loan while you have an open account with them. However, there’s a good chance they have conditions on what and when you can borrow.
You might have to wait until you have paid off a certain amount from the first loan or until enough time has passed since your initial application.
Depending on the status of your account, your lender may cap how much you can borrow and adjust your rates.
They may even deny you outright, as many other lenders will, too. Plenty of lenders won’t let you borrow a second loan until you have fully paid off the first one.
Of course, each financial institution has its own policies. Some banks allow you to take out a new line of credit with very few limitations when you already have a credit card, personal loan, and mortgage with them.
So, you may also have better luck if you are borrowing a different kind of loan from the first one.
The Dangers Of Loan Stacking
Loan stacking is a risky practice where you apply for multiple loans from different lenders at the same time.
This is different from the first scenario, where we discussed how some people might have multiple loans out.
In that example, borrowers slowly built their loan profiles, opening a credit card one year and getting a mortgage the next.
While they might have multiple accounts open at the same time, they applied for them separately.
With loan stacking, borrowers apply for and receive several loans (usually short-term personal loans) all in one go. In other words, you’re stacking loans one on top of the other.
Some people do so when they aren’t approved for the amount they need from a single lender. So, they ask for more money from another.
At first, you might not see the problem with loan stacking. However, it can be risky because of how quickly these accounts can change your budget. You can easily take on one too many without realizing it.
Lenders won’t be able to flag your application, either. Since you’re applying all at once, they won’t see that you are going to add other debt to your plate at the same time.
Assuming their loan will be the only new loan you take out, they might assume you have more money available to spend on their loan and approve you for something that — if they knew you were going to add more debt — they would not offer.
There’s also the risk you violate the terms of one loan agreement by taking out similar financing at the same time.
While not exceedingly common, this mistake can land you in some hot financial water if you get caught.
It’s Up To You to Decide How Much Is Enough
Debt can creep up on you, no matter what or when you borrow. It’s always a good idea to check in with your budget before you apply. Identifying your limits is one of the many steps to borrowing responsibly.
Depending on your budget, you might be able to have multiple loans at once — or not. Do what’s best for your finances.
