Personal Loan: When faced with a sudden need for funds, people often consider taking out two personal loans at the same time. While the RBI places no restrictions on this, banks do have specific rules regarding the approval of two personal loans. Read on to learn more.
Personal Loan Rules: There are times in our lives—such as during a medical emergency—when we face a sudden and urgent need for money. In such situations, many individuals contemplate taking out two personal loans simultaneously. It is important to note that the Reserve Bank of India (RBI) has not established any rule prohibiting an individual from holding more than one personal loan. This clearly implies that you can take out multiple loans; however, the final decision rests with the specific bank or NBFC. They primarily assess your repayment capacity—that is, whether or not you are capable of repaying the loan.
Obtaining a Second Loan Is Not Always Easy
However, when it comes to securing a second personal loan, the process is not always straightforward. Before approving a loan, banks carefully evaluate your income, your existing EMIs (Equated Monthly Installments), and your total outstanding debt. If your total debt burden is disproportionately high relative to your salary, you may face difficulties in getting the loan approved. Therefore, it is essential to be well-informed about certain key factors before applying for a loan.
What Do the Rules Say?
It is crucial to understand that the RBI does not impose any blanket ban on holding more than one personal loan.
However, banks and NBFCs make the final decision regarding loan approval based on their own specific internal policies and criteria.
Key Conditions for Sanctioning a Second Loan:
Keep in mind that banks closely scrutinize the total amount of debt you are accumulating.
Loans are sanctioned strictly in accordance with your overall loan eligibility criteria.
Furthermore, in certain instances, banks may impose restrictions on taking out multiple loans simultaneously from different lenders.
The Importance of DTI (Debt-to-Income Ratio)
When evaluating an application for a second personal loan, banks assess several critical factors, such as:
The DTI ratio indicates what proportion of your annual income is currently being allocated toward EMI payments.
A DTI ratio of up to 35 percent is generally considered to be a safe and manageable level.
If your DTI ratio is excessively high, the bank may decide to modify the sanctioned loan amount or adjust the repayment tenure. Let’s understand this with an example:
Suppose your monthly salary is ₹50,000, and you pay a monthly EMI of ₹10,000. In this scenario, 20% of your salary goes towards loan repayment each month—a ratio known as the DTI (Debt-to-Income ratio).
Why is a Credit Score Important?
Since personal loans are granted without collateral, banks evaluate your credit score. Generally, a score of 750 or higher is considered good.
Your credit score indicates whether you repaid your previous loans on time and whether you ever defaulted on any EMI payments. If you have a history of timely EMI payments and a clean credit record, your chances of securing a loan increase significantly.
