There is no law that limits the number of car loans you can have. So you can have two, three, five, ten, or more car loans. However, it is quite difficult to qualify for a second car loan if you already have one active car loan. This is because; your income and credit ratings have a significant impact on the car loan. The lender will only approve your second car loan if your income and debt can handle the added monthly expense of the second car loan.
- Monthly income and credit score play a huge role on whether you will get 2nd car loan or not
- If you are opting to buy your second car then you have two loan options: car loan or personal loan
- Your debt to income ratio should be 43% or lower or you won’t be able to qualify for 2nd car loan
- If you pick a less expensive car then your chance of getting another car loan will be higher
Multiple Vehicle Financing Options
If you want to apply for your second car loan to buy your second car then there are two options available to choose from. Each option has benefits and drawbacks, therefore; you have to think carefully before making the final decision. You can either get an auto loan or a personal loan; if you have a personal loan then you don’t have to spend the personal loan on a particular type of purchase. A personal loan is a non-collateral loan and you can spend the loan according to your own discretion. On the other hand, if you apply for an auto/car loan then you have to spend the money on the car. If you want to use a personal loan instead of a car loan to buy a second car then –
1. Figure out which car you want to buy and assess their values. Check different dealerships to get the best price.
2. Once, you have known how much money you will need to buy your second car then you can begin the application process for a personal loan. Contact the loan providers like banks or other financial institutes and find the best interest rate for your loan.
3. Once your loan application is approved and you’ve deposited the amount of that loan into your checking account then you are ready to buy your second car.
4. Now purchase the car from the dealership that offered you the best price.
5. Finally, pay off your loan on a monthly basis until its term is complete.
On the other hand, if you want to purchase your second car with your second car loan then –
1. Ask the dealership what will be the best deal to purchase a car with a second auto loan.
2. Contact various lenders for the best rate.
3. Check your monthly income and credit report and see if you can qualify for a second car loan.
4. If you qualify for a second car loan then provide the necessary documentation to your lender.
5. The lender will check all your documents and decide if you can qualify for the second car loan.
6. If your second car loan application is approved then deposit the amount of that loan into your checking account then you are ready to buy your second car.
7. Finally, pay off your loan on a monthly basis until its term is complete.
Factors Checked By Lenders For Approval Of Second Car Loan
If you already have one car loan and apply for a second loan then the lender will check quite a few things before approving your auto loan. Usually, there are four factors that play a large role when you apply for a second car loan. They are –
Credit Score And History: when you apply for your second car loan, the lender will check your credit score and credit history. They will check if you have missed any payments recently on your current loan or other loan accounts. If you have any late/miss payments then the lender is less likely to approve your loan application.
Monthly Income: This is a very important factor because your monthly income will tell if you will be able to pay or support another car loan and other expenses that come with it. There are some common costs of a new car like car insurance, maintenance, etc. So the lender will check if your income can support all the costs of buying another car. If your monthly income won’t support the common costs of a new car then it will become harder for you to qualify for a second loan.
Other Debts: If you have other debts then your debt to income ratio should be below 43% or lower. The lower the ratio is the better your chances of qualifying for a second car loan. If most of your monthly income is already going toward debt then there is no way you can bear the cost of a second loan. Therefore, the lender won’t approve your second car loan.
Car Value: The lender will also check the value of the car that you are planning to buy with your second car loan. If you pick a less expensive car then the chance of your loan approval will increase. Moreover, the lower the car loan, the better will be for you to make payments on two cars.
How To Increase The Chance Of Approval For Second Car Loan
If you already have a car loan then the lender will check your second car loan application with more scrutiny. Therefore, if you want to increase the chance of approval for your second car loan then you can follow the below tips –
Apply With A Co-applicant: If it is your second car loan application, then you can apply with a co-applicant. For example, you can apply with a spouse or parent and it will boost your monthly income and credit scoring ratings. Unfortunately, not every lender accepts co-applicant for a car loan. Therefore, contact the lender before submitting a co-applicant car loan application.
Save Money For Large Down Payment: This is an excellent way to minimize the amount of car loans. You can save money for a large down payment. If you can make a large down payment then it indicates that you have the finances to handle the loan. Moreover, a large down payment means you need fewer loans to buy the car and fewer loans mean less interest rate. Besides, it will help keep your second car payment affordable.
Choose a less expensive car: If you are applying for a second car loan to buy your second car then try to pick a less expensive car. A less expensive car means you will require fewer loans so the chance of approving your second car loan will increase significantly.
The Effects Of Having Two Car Loans
Having two car loans is a huge financial responsibility. Two car loans mean you will have an additional payments each month and it will also affect your overall credit score. If your second car loan application gets approved then there are chances that your credit score will take a negative hit and it will temporarily decrease after you take out the loan. Moreover, you will have a higher debt-to-income ratio. So, it will become harder for you to get a good interest rate if you apply for loans in the future. Additionally, you will find it very difficult to improve your lost credit score due to a second car loan. Therefore, think through all your options before applying for a second car loan.
FAQs About How Many Car Loans Can One Person Have
Can You Get A Second Auto Loan?
Yes, you can get a second auto loan. However, to approve your second auto loan you must have a good credit history with an excellent credit score and your monthly income has to be sufficient enough to cover the cost of a second auto loan. Other than that, it will be very difficult to approve the second auto loan.
Should I Try to Get Two Auto Loans At the Same Time?
The answer to this question depends on your financial condition and credit score. If you have excellent credit, limited debt, strong income, and you are mentally strong to take huge financial responsibility then you can get/apply for two auto loans at the same time.
What Are Typical Car Loan Terms?
Usually, car loans are available in 12-month increments with loan periods between two and eight years. The most common car loan terms are 24, 36, 48, 60, 72, and 84 months. However, the longer the auto loans term is the more the interest rate will be. So a long-term auto loan will cost you more money than a short-term auto loan.
Can I Finance A Car With Two Loans?
Yes, you can finance a car with two auto loans but experts don’t recommend it. This is because borrowing two car loans for a car will only increase the amount of debt you have and it will become very difficult to afford monthly repayments. Therefore consider financing your car with only one car loan at a time.
Can 2 People Finance The Same Car?
Yes, two people can finance the same car. A joint auto/car loan has many benefits and you can apply for a joint car loan with your parents or spouse.
Last Updated on October 7, 2022 by Magalie D.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.