Taking on too much debt should be avoided whenever possible, but sometimes unexpected costs can crop up. If you’re already paying off a loan, then these costs can be worrying, however it may be possible to get another loan to help pay for them.
Options for additional loans
Different lenders have different policies, so your options for an additional loan may be limited, depending on the terms of your current lender. Consider all your options before deciding which is right for you.
Taking a second loan from your existing lender
It’s easy to think that staying with the same lender will be the best option, but this isn’t always the case. You won’t necessarily be offered the same rate on a second loan.
On top of that, not all lenders work in the same way. Your lender might:
- Offer top-up loans which allow you to increase the amount of the loan
- Insist that you terminate the first loan and take out a larger loan – this may mean paying a fee
- Only allow you to take a second loan after you have maintained your current loan for a set period
- Refuse another loan until you have paid off your existing loan
- Allow you to take out multiple concurrent loans, but with different interest rates
Find out from your current lender what the options are and whether there will be any penalties for paying off your loan early, consolidating your loan or changing the loan amount.
Taking a second loan from an alternative lender
If you are unable to secure another loan from your existing lender or you aren’t happy with the terms they offer, you may be accepted by an alternative lender instead.
It is worth noting that a new lender will still consider your current loan when deciding whether to accept or reject your application. This could mean you don’t get the advertised APR and will have to pay a higher rate of interest.
Consolidating your debt
Rather than having multiple loans running at once, you might find it easier to consolidate your debt. This means taking out one loan which covers your existing loan as well as the new amount you need.
There are several products specifically designed for this purpose, but other types of loans, and even credit cards, might work just as well.
If you are consolidating large debts, you may want to consider a secured loan. This means that you use an asset (such as your house) as security. This is a risk because if you can’t pay, you may lose your home. However, it means lower risk for the lender so they may offer you a bigger loan or better payment terms and interest rates. You should only do this if you can afford the repayments.
Other lending options
Before taking out multiple loans, consider other options too. You may find that applying for a credit card with an interest-free period, asking for a bigger overdraft or taking out a short-term loan could be more suitable.
This will depend on how much you need to borrow, how quickly you can repay it, and how much you can afford to pay back. Research the different options before rushing into any decisions.
Things to consider
Taking out a second loan to pay for a big purchase, event or unexpected expense can help cover the cost, but there are disadvantages too.
You could make it harder to borrow in the future
When you apply for credit, most lenders will check your credit history. If there are multiple loan applications or you have struggled to keep up with payments, this could damage your chances of getting accepted for loans, credit or a mortgage in the future.
You might take on too much debt
If you have to take on multiple loans, this could be an indicator of a bigger problem. Perhaps you are spending more than you can afford and need help and support on managing your budget more effectively. The following organisations are recommended by the FCA and provide free help and support to people who are struggling with their finances:
- Money Helper - Set up by the government to provide advice and guidance, along with tools and calculators, to help people with a wide range of financial solutions.
- Citizens Advice - People can speak to them on the phone to receive free help and support.
- StepChange Debt Charity - The UK's leading debt charity. They offer a free online and phone-based service to help people overcome their debt problems.
- National Debtline - Offers free guidance and budget planners.
You’ll have to pay out more each month
Taking on more loans means additional monthly payments coming out of your account. If you can’t make payments on time, or interest rates are high, you can end up incurring more and more fees which add to the debt.
Not all loans are the same
Interest rates, APR and fees vary between loans and lenders. Personal loans can often have higher interest rates than other forms of credit, and if the rate is variable, you might struggle to keep up with the payments if the rate increases. Make sure you understand the terms of any loan before you agree.
How to get the best deal
If your purchase isn’t urgent, then you might find it better to wait until you have saved the money you need or have cleared more of your existing debt.
If you can’t wait, then shop around before applying for a loan. Make sure you only get quotes that involve soft searches. This means that when the lender runs checks, they don’t appear on your credit report. Too many loan applications at once or too many hard searches on your credit report can damage your chances of getting accepted for credit.
Make sure that you understand the payment terms; how much you are borrowing, for how long and the total amount you will need to pay back, including interest and fees. Most importantly, only borrow what you can afford to pay back to avoid getting into financial difficulty.
About Morses Club
At Morses Club, we want our customers to feel more in control of their finances. We understand that there are times when expenses crop up unexpectedly, or you just can’t make your income stretch as far as it needs to. When this happens, we may be able to provide a small loan to help you get back on track. Our helpful loan guides and frequently asked questions offer more information to help you decide if this is the best solution for you. If you think that a Morses Club loan is right for you, then you can apply here.