Just like keys on a keychain, personal loans hold the potential to unlock exciting opportunities. But as the number of loans increases, they can quickly become a burden.

So, how many personal loans are too many?

This question has become increasingly relevant over the past year as the demand for personal loans has skyrocketed because of the cost-of-living crisis.

Before you apply for another loan, let’s examine how many personal loans you can have at once and strategies for managing multiple loans effectively.

Understanding personal loan limits

There are no regulations prohibiting you from having multiple personal loans. Besides, getting through life without using debt is almost impossible for most people.

According to recent studies, the average American household is paying off $101,915, including their mortgages. How else do you buy a home, vehicle, or pay for higher education?

Obtaining multiple personal loans from a single lender or from various lenders is possible. But some might have restrictions, such as a limit on the number of loans or the maximum amount you can borrow.

While having an existing loan may not automatically disqualify you from getting another loan, lenders might decline your application if your current debt is too high.

Factors that determine how many loans you can have

Applying for multiple personal loans depends on factors such as your credit score, debt-to-income (DTI) ratio, and your income and employment stability.

Credit Score

When you get a loan, your credit score can drop by five to 10 points because lenders do a hard credit check, which stays on your credit report for two years.

A hard check is when a lender scrutinizes your full credit report from one or more major credit bureaus (Equifax, Experian, and TransUnion) to pre-qualify you for a loan.

If you fulfill your loan obligations and make timely payments, your score should bounce back within several months from one hard inquiry.

But multiple hard inquiries within a short period will adversely impact your credit score and make you look like a high-risk borrower to lenders.

Debt-to-income ratio

All lenders utilize the DTI ratio to determine loan eligibility. DTI compares your total debt payments to your pre-tax income. A desired DTI is 36% or below, whereas 43% is viewed as risky.

For example, say your monthly income is $5,000 and your debt total is $1500 giving you a DTI of 30%. If you take out a new personal loan with monthly payments of $500, your DTI will jump to $2,000, giving you at DTI of 40%.

Based on Consumer Financial Protection Bureau (CFPB) guidelines, your DTI for mortgage loan qualification, which includes credit card debt, car loans, and other personal loans, cannot exceed 43%.

In short, having too many personal loans affects mortgage eligibility and will limit your future borrowing capacity because a high debt burden increases the risk of default

Income and employment stability

Financial institutions prefer borrowers with a consistent employment record and a stable source of income that verifies they have enough money to cover loan payments.

As a result, many hardworking self-employed people, or those with fluctuating employment may encounter difficulties seeking loan approval.

If you’re self-employed, don’t fret, but be prepared to present extra paperwork such as tax records, bank statements, and evidence of ownership to demonstrate financial stability.

When does it make sense to take out another personal loan?

It's justifiable to obtain additional loan if you're consolidating credit debt through a personal loan and unexpectedly encounter a medical emergency or major vehicle repairs.

Or, say, if you took out a personal loan for a wedding, then needed additional funds for some necessary home repairs or renovations to increase its resale value, getting another loan is a sensible solution—as long as you can afford to pay it back comfortably.

Having multiple loans allows you to borrow money for different purposes without impacting the interest rates on your other loans.

This means you can obtain one loan for a specific project, such as a home renovation, and another for leisure activities without depleting the exact source of funds.

Keep in mind, however, that juggling the responsibilities of existing and new debt can burden your finances and make it challenging to fulfill other financial commitments.

Alternatives to personal loans

If you’re already thinking, “I have too many personal loans,” there are alternatives that may better suit your financial needs and goals.

Balance transfer offers

A balance transfer offer is a special promotion offered by credit card companies that allows you to move an outstanding balance from one card to another for a reduced interest rate or fee.

Such an arrangement helps you pay off your debt faster. But after the introductory period, the interest rate will return to the regular rate, so you want to pay off the entire balance before that time period ends.

Credit cards with 0% APR

0% APR credit cards charge no interest on purchases and balance transfers for a set amount of time. Some popular options include the Citi® Double Cash Card and the Discover it® Balance Card.

Their 0% Annual Percentage Rate (APR) promotion can last anywhere from 6 to 21 months. To take full advantage of 0% APR credit cards, you should pay off the balance before the regular interest rate takes effect.

Home equity line of credit (HELOC)

This type of loan allows you to borrow money against the equity in your home. The maximum credit limit is typically based on a percentage of your home's appraised value minus the balance of any outstanding mortgages.

You access the funds at any time, like a credit card, and only pay interest on the amount you use. Like personal loans, you can use a HELOC for a variety of purposes including home renovations, education, or debt consolidation.