Blogs

Well, you may encounter a situation when you have already taken a personal loan for home renovation, but now you need extra funds for your daughter's marriage. In this situation, many questions come in your mind, such as whether you should get a top-up loan, or you should get a second loan from another bank, and so on. Whether it is possible to get loans from two banks or lenders is the moot question.

The answer is yes. Yes, you can get loans from two banks at the same time. However, you need to fulfil the following requirements to get a second loan.

Good credit score: When you apply for a loan, a lender, first of all, checks your credit score with rating agencies. If your credit score is good i.e. above 750, you can apply for a new loan.  

Range	Grade
750+	Excellent
700-749	Good
650-699	Fair
550-649	Poor
550 & below	Bad

FOIR: Apart from your credit score, the bank checks your repayment capacity and based on it, the bank will decide whether or not you are eligible to get a loan. Banks use your FOIR (Fixed Obligation to Income Ratio) to determine your repayment capacity. FOIR is a popular parameter which lenders use to determine the repayment capacity of a borrower. As per this parameter, a loan applicant needs to limit his/ her fixed obligations, including the EMI(s) of the current loan being applied for, to 50% of his/her income.  In other words, lenders would ensure that your monthly loan obligations/ liabilities are within 50% of your monthly income, considering that 50% of your monthly income is being used for your living. 

For example, if you already have a personal loan with ICICI Bank and now you want to apply for another personal loan from HDFC Bank. In this case, HDFC Bank would check if your EMIs for both personal loans can be paid with 50% of your monthly income. If the bank finds that you have a sufficient income to repay a new loan, it will readily accept your loan application. However, if HDFC Bank comes to know that your monthly loan obligations/ liabilities exceed 50% of your monthly income, it may decline your application for a second loan. 

You can get two loans simultaneously, but be aware getting a second loan can be risky and expensive. Over borrowing will increase your EMIs and the overall cost of the loan, making it difficult for you to clear your debts. If you don't pay an installment on time or skip an EMI, it will affect your credit score negatively. Instead, you can apply for a top-up loan on your current personal loan. 

Top-up loan

A top-up loan is a type of loan that a bank offers on top of the primary loan amount to its existing customer of a personal loan, home loan, etc. If a bank doesn't offer a top-up loan, the customer can transfer his/her existing loan to a new lender and apply for a top-up loan.

Features and benefits of a top-up loan

1. Debt consolidation: Borrowers can get a top-up loan on their existing personal loan and pay off other debts like credit card bills on time. Consolidating other debts will help the borrower reduce the overall interest cost, and now they will have a single loan to pay off.   

2. Minimal documentation: Because the customer has an existing relationship with the bank, the bank already knows about the customer, his credit history and repayment behavior. Hence, the requirement for documentation is minimal. However, it may vary from bank to bank. 

3. Quick processing: Since the bank knows the customer very well because of the original loan, the loan disbursal process for a top-up loan would be quick.

4. Consolidated EMI: Many lenders allow the customer to repay the original loan and top-up loan in a consolidated EMI, so there is no need to repay the loans separately.  Hence, you will have a single EMI to pay every month and you will not need to remember different due dates for different loans.

5. Attractive interest: There are lenders that offer a top-up loan at attractive interest rates for the customers with a good repayment history. Because of this, many borrowers opt for a top-up loan rather than applying for a new loan.  

6. Extended tenure: The tenure for a top-up loan depends on the outstanding balance, loan amount, and your repayment capacity. The tenure can be longer than the tenure for a personal loan. Longer tenure means you will have sufficient time to clear the loan. 

7. Funds to meet other expenses: If you have already availed a personal loan for your home renovation, but you need extra funds for other expenses such as exotic vacation or medical emergency, you can apply for a top-up loan to meet these expenses rather than getting a second loan.    

A personal loan is one of the finest financial options if you know how to handle it. Almost all leading banks and other financial institutions offer a personal loan. A personal loan can be used for a variety of reasons, such as for a home renovation, exotic vacation, child's higher education and wedding, and big-ticket purchase, and many more. 

Read Here: Top up Loans Vs Home Improvement Loans: Which is Better?

Reasons for multiple loan applications 

• Unplanned and unavoidable expenses
• Single source of income