Would you get a loan to clear loan? In orther words, will you burrow money to clear the debts that you already have? If you have debts that you need to clear soon, but do not have any funds, how likely you are to get a new debt.
In that case I would opt for another loan provided it is more beneficial than the earlier one. But if there is no other option to close the loan which is extremely urgent I have to give in unconditionally and apply for a new loan. But if there is enough time and the second loan seems to be saving some money in terms of interest I think there is no harm in applying for the second loan. But the issue here is that in most of the cases banks won't give you a loan if you have any old dues with any banks. They can easily check your credit score in CIBIL.
I may consider doing that if after exploring all avenues to get money and yet no hope. This is not the better option and if care is not taken things could get more complicated financially. I doubt if it will be easy any longer securing more loans from other sources if one has a pending loan that's known.
In the olden days, we do that – borrowing money to pay off existing loans. We call that restructuring loans. Instead of paying penalties for the existing loans that we cannot pay, it is cheaper to pay interest on a new loan (that will be used to pay off the existing loan). However, the amount of interest will depend on the kind of loan. If the loan is from a loan shark then you also lose by paying more for the interest than the penalty of the unpaid loan.
This is the worse experience I had had before. I was indebted much from a private person. I was in trouble that I couldn't pay her in due time. She kept on demanding that I have to pay here the soonest. I had no choice but to look for another person to lend me money to pay my existing delinquent loan. It wasn't good for I had to increase my present loan to cope with my outstanding loan due to its interest. Therefore, it is not good to get another loan to repay an existing loan.
I think it would be better to borrow money to pay off a maturing debt rather than be charged penalties for delayed payments and consequently, hurt your credit scores. That is, if we're talking about institutional loans from banks or credit companies. I might consider borrowing from a family member if the amount is not too big or take out a low interest loan to restructure the existing loan into a more realistic payment plan considering my financial situation.
When you have no other option you are bound to take this route. Provided that it gives you some time to gather the amount for the second loan payment. It's true that this is one of the worst situation but it still helps you save on the penalties.
It's a good idea to apply for another loan to pay an existing loan. However, you might find yourself making your loan situation worse. This is because, it becomes a cycle, you end up still having a loan while your aim is to do away with loans. You can add a loan to the existing loan at the same bank and instead of paying the existing loan, they extend the deadline for completing the loan. You will have two loans which means more money will be deducted from your salary but you will have time to plan for future payments.
