In this day and age, it’s not uncommon for Canadians to have multiple types of credit products listed on their credit report. Many borrowers have one or more credit cards, a car loan, a mortgage, and maybe even a few personal loans to take care of day-to-day needs. Often, there is nothing abnormal or suspicious about this, it is simply how the financial lives of most adults and businesses work.
However, having multiple loans at the same time becomes a problem when something called loan stacking occurs. Loan stacking is often considered to be a fraudulent activity where a consumer applies for many loans, from different lenders, all at the same time, with the plan to not pay any of them back or without notifying lenders of their pending loan applications.
Loan stacking is when a borrower applies for multiple loans all within a very short window of time. This typically occurs when a borrower can’t qualify for a loan that is large enough. Either because their credit or financial profile isn’t strong enough or because they already have too much debt.
Because there are delays between applications, transactions, and credit inquiries that show up on credit reports, the lenders have no idea what is going on. If one consumer applies for five loans all from different lenders within the same day, each lender will have no idea the others exist and will have no reason to be suspicious of the borrower.
As discussed, loan stacking occurs when several loans are taken out at the same time or within a short period of time.
Loan stacking occurs when you keep both loans and do not set off one loan with the other.
For example, let’s say that you were approved for a $ 25,000 loan from Lender A and at the same time receive another loan from Lender B of $50,000. As a result of this, you are now under the burden of two loans and a larger sum of $75,000.
John needs a loan of $25,000 to fund his small business. Unsure if his loan application with the bank would be approved, John decided to apply for a $25,000 loan with a credit union as well. To his surprise, both lenders approve the loan and now he has $50,000. Both loans have similar rates and terms.
In this example, loan stacking occurred when he decided to keep both loans, which also generally occurs without the lenders’ knowledge.
When it comes to loan stacking, unfortunately, there are many risks for the borrower, most of which they do not consider before stacking multiple loans.
When subprime lenders have had issues with fraudulent loan stacking in the past, it can lead to the lender becoming apprehensive as to who they’re now lending to.
For example, a subprime lender could pull an applicant’s credit report, see that they already applied or have other loans with other lenders, assume that they’re stacking fraudulently and deny their application.
As discussed, loan Stacking can easily result in the borrower falling into further debt while also affecting future borrowers’ ability to access financing. If you’re looking for additional funding for yourself, consider the following alternatives.
If you have a long-term relationship with a lender, ask for an additional loan. This approach can be easier than looking for a new lender. You’ll likely need to explain your circumstances and the genuine need for another loan.
Usually, a lender can offer additional financing if you have paid back a major part of your first loan. Furthermore, your lender will probably want to see that you’ve been a responsible borrower and paid all installments on time.
If you’ve already paid down a significant amount of a current loan and you need access to more money, consider refinancing your first loan. When you refinance a loan, you’ll take out a large loan, pay off your first loan and then keep the remainder of the second loan to cover whatever new expenses you have.
Rather than stacking your loans, consider applying for a credit card with a low-interest rate or a personal line of credit. These could be a better alternative as you only have to pay interest on the amount you use. Moreover, repayments are flexible, you only have to pay the minimum balance to avoid any penalties. However, it’s important to note that the remaining balance will continue to accrue interest until repaid.
If you are in a position where your friends or family may have the financial ability to help you, then you may want to consider borrowing from them. Before asking, consider how much you really need to borrow. You’ll want to assess which one of your friends and family may have the financial ability to lend you money. A loan contract with repayment terms, such as the one you may sign with a lender may also serve as a safety net for both, and help avoid any emotional and financial stress between you two.
If you’re thinking about loan stacking because you can’t get approved for a large enough loan, consider working on your financial and credit health first. The lower your overall risk, the more a lender will be willing to lend to you.
You can reduce your risk by improving your credit through responsible debt payments. Once you’ve improved your credit, paid down any debt, and improved your finances, then re-apply for the loan you need.
It’s important to understand that while loan stacking may be tempting when you’re struggling financially, the negative outcomes always outweigh the momentary positive ones. In any case, if you choose to access further funding make sure you discuss it with your loan agent to ensure you are not breaching your contract. If you are struggling with large amounts of debt, there are several free credit and debt counselling services available to help you.
Rating of 5/5 based on 4 votes.
Priyanka Correia is a Marketing Coordinator and personal finance expert at Loans Canada. Priyanka completed her Bachelor's degree in Marketing at Concordia University and has published work that has been mentioned in various news media. She is passionate about money management and educating Canadian consumers about how to take control of their financial lives.
Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.
Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
Frank Mortgage is Canada’s one-stop shop for mortgages. Get up to $1,500 cash back on your mortgage.
Great unsecured credit card for customers currently in, or recently discharged from, a consumer proposal or bankruptcy
Earn an average 5%¹ cashback at thousands of partners and at least 0.5%² cashback guaranteed with Neo.
KOHO’s Credit Building Program helps you build a better credit history with easy to manage payments for just $10/month.
All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.
When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.
Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.
