Key takeaways

  • Bad credit loans are costly, and taking out several can lead to cash flow issues.
  • Applying for multiple loans in a short window can also temporarily lower your credit score.
  • Alternatives to multiple bad credit loans include secured credit cards, government or nonprofit financial assistance and loans from close friends or family members.

Taking out multiple bad credit loans is possible but could do more harm than good to your finances. This is especially true if you’re struggling to organize your debts.

Bad credit loan rates and fees are high. The more you borrow, the more likely you are to get trapped in a dangerous debt cycle. So, it’s worth considering alternatives to potentially avoid financial hardship down the road.

Should I take out multiple bad credit loans?

Whether you should take out more than one bad credit loan depends on your ability to repay the loans and why you’re considering borrowing more. Be sure to evaluate your financial situation first.

More specifically, understand how much debt you already have, how much income you have each month and what your debt-to-income (DTI) ratio is.

Most lenders want to see that even after adding a new loan payment, less than 36 percent of your monthly take-home pay will go toward paying off debt. Some allow a DTI of up to 50 percent.

Learn more: 6 types of bad credit loans and their uses

However, if your current debt load means you are having trouble making payments, adding more debt may not be the best solution. Spreading yourself too thin financially can lead to problems down the road. These include missed payments that can lead to credit damage and fees.

Applying for a loan can also temporarily lower your credit score due to the hard credit check. And if you apply for several in a short window, the negative impact could be even greater.

It may be more beneficial to focus on improving your credit before applying for another loan. But if you need fast funding, be sure to only borrow an amount you can afford to comfortably repay.

When to consider a consolidation loan

A consolidation loan may be attractive if you are struggling with loan payments. It can help make loan payments more manageable by combining your debt balances under a new loan with a single, potentially lower, payment.

So, rather than taking out additional, new debt, you’re paying off your existing debt with a new loan. Be sure to consider the following before applying for another loan:

  • The amount of debt you’re already juggling and if it can all be consolidated.
  • Your monthly budget and if you can afford the new payment amount.
  • Your current credit score and repayment history.
  • What interest rates and origination fees you potentially qualify for.
  • How much interest you will pay on the loan and whether it would be lower than your existing interest rates.

Keep in mind that a debt-to-income ratio above 36 percent can make it difficult to get a loan.

Learn more: 3 steps to calculate your debt-to-income ratio

Those with low credit are also more likely to be offered higher origination fees and higher interest rates.

How to improve your chances of getting another loan

If you have a poor credit score and need a loan, research lenders that specialize in bad credit loans. Also, pay attention to their advertised rates and look for the most affordable options.

Here are some ways to improve your chances of getting another loan:

  • Pay off existing debts: Taking on a loan can increase your debt-to-income ratio and strain your budget. Before considering another loan, try paying down your revolving accounts or taking out a debt consolidation loan to further simplify your loan payments.
  • Prequalify: To avoid a negative impact on your credit, look for lenders that offer prequalification. This allows you to assess your eligibility and receive rate quotes without affecting your credit score.
  • Work on building or repairing your credit: Repairing your credit before applying for a loan can help you avoid being denied due to a low credit score. It can also increase your chances of scoring a more competitive rate.
  • Consider a secured personal loan: If you are having difficulty obtaining an unsecured loan, try getting a secured personal loan. It may be more easily accessible, as the balance is backed by collateral. Just be aware that you may lose your collateral if you default.

Alternatives to multiple bad credit loans

Before resorting to more bad credit loans, consider these alternatives if you need access to more funds:

  • Consider a secured credit card or one geared toward those with low credit. While these cards will likely come with high interest rates, they’re a way to get the funds you need when you need them.
  • Apply for assistance from the government or local or national nonprofit organizations. It may take time to qualify and receive funds, and you may need proof of financial hardship.
  • Ask a close friend or family member if they’d be willing to lend you the funds. Just make sure you have a clear repayment plan in writing and stick to it to avoid damaging your relationship.

While the alternatives aren’t extremely plentiful, they’re worth considering to avoid digging a bigger debt hole.

The bottom line

Technically, you can take out as many loans as lenders approve. But that often isn’t the best option. Between keeping up with multiple payments and impacting your debt-to-income ratio, taking on more debt with already shaky credit can hurt your score even more.

If necessary, you can take out multiple bad credit loans with different lenders. But avoid high-interest loans, like no credit check loans and payday loans.

Lenders that approve borrowers on the lower end of the credit spectrum are more likely to charge hefty fees and interest. So read the terms and conditions carefully before applying for a bad credit loan to know exactly what you’re signing up for.