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Top risks borrowers face when availing multiple loans

  • Highlights

  • Availing many loans at the same time can reduce your credit score

  • It increases your monthly cash outflow as your interest burden rises

  • Increased EMIs can throw your finances off-track, leading you to a debt trap

  • Be fully sure of your income and repayment ability

As a professional, you can require funds from time to time. Be it infusing capital in your practice or firm to expand your reach or meeting various personal commitments. In such cases, availing another loan seems to be an attractive choice. However, while your needs may be many, you should be aware of the risks of availing many loans.

Here’s how borrowing funds from multiple lenders can weaken your financial position.

1. It erodes your credit score and credibility

When you have multiple loans from various lenders, managing various deadlines and interest rates can prove to be difficult. This may result in you defaulting on repayment, which has a negative impact your credit score. A bad credit score can make it difficult for you to avail loans later, as you are perceived as a high-risk borrower to lenders and could prevent you from securing a high loan amount or a good interest rate when you seek loans in the long-run. Also, too many loans establish you as a high-spending individual in the eyes of the lender indicating that you’re an unreliable borrower.

2. It throws your finances off track

Multiple loans from various lenders means paying a high amount as interest each month. This means that your total cash in hand will start decreasing as your EMIs continue rising. With multiple EMIs piled up for payment, if in case you miss or are unable to pay any of them, it could lead to a high penal interest on the defaulted EMIs that you have to pay over and above your regular interest liability.

In an effort to repay all your loan, you may end up liquidating your investments, thereby foregoing the returns they could have it generated, or miss out on making essential purchases for you and your family.

3. It could lead you to a debt trap

Once you have many loans that you can’t repay, it can strain your financial position. With many loans accumulated, the high interest payments could typically lead you into a situation where it becomes difficult for you to repay the principal. Furthermore, your lender may file a lawsuit against you for defaulting on payments.

Hence, before you avail multiple loans, it is essential that you keep the above risks and repercussions in mind and weigh your odds of repaying all EMIs. If you’re absolutely sure of your income and repayment ability, taking multiple loans won’t be a problem for you then.

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