You can have two car loans at the same time. However, it is usually more difficult to get approved for a second loan than it is for the first. Lenders will be pickier when looking over your qualifications to approve you for a second loan. But approval is possible, and a second car loan can be a good way to finance an additional vehicle.
Perhaps your teenager just turned 16 and has started to drive and now has more extracurricular activities to get to. Or maybe your spouse got a new job that’s a bit of a drive away. For these reasons and many more, your family may be in need of a second car. But what if you already have a car loan on your first vehicle that you’re still paying off? Will your lender allow you to take out a second car loan?
Well, there is no official limit to the number of car loans you can have at a time. Though your lender may be a bit more choosy when it comes to handing out additional auto loans, it is possible to get a second one. You will need to have a good credit history, annual income, and debt-to-income ratio. It also helps to be able to make a big down payment. Keep reading to learn more about second car loans, what lenders look for, how you can get one, and more.
What is a car loan?
Cars are a hefty purchase, and it is common for buyers to take out a loan in order to afford one. A car loan, or an auto loan, is when a lender provides you with a lump sum of money so you can buy a car. You pay the lender back over time through monthly payments with added interest. The lender holds the title to your car until you pay off the loan in full.
Can you have two car loans at the same time?
You can definitely have two car loans at the same time. Keep in mind, however, that the qualifications for the second car loan will likely be more strict than for the first auto loan. This is because lenders want to be sure your finances can handle the additional debt.
Reasons you would get a second car loan
The main reason someone would get a second auto loan is the need for a second car. Cars are expensive, so if you already have an auto loan but need another vehicle, an additional car loan may be your best option. While the additional debt may seem daunting, it is common for many families to need an additional vehicle to get everywhere they need to be. So, it could be worth it just for convenience’s sake.
Can you have two loans on one car?
An auto loan is a secured loan, so it’s hard to imagine a situation where a lender would give you two loans secured by the same car. The car is only worth so much as collateral. A second lender loaning you money secured by the same vehicle would face increased risk because the first lender also has a claim against the property. What if you’re unable to pay your car loans? Because the settling of secured debts usually follows a “first in time, first in right” rule, there’s no guarantee the second lender could fully recoup losses by repossessing and selling the vehicle.
A second loan from a second lender
In spite of the increased risk, it is possible that a second lender will offer you a second loan guaranteed by a car if you have equity in the vehicle. In this case, equity is the the market value of the car minus the balance of the car loan.
Since this sort of loan, called an auto equity loan, poses more risk to second lenders, the interest rate and terms usually won’t be as good as those you got from your first lender.
Borrowing more from your original lender
If you’ve paid off a fair portion of your first loan and your car’s value now exceeds the amount you owe on it, your lender might consider lending you money against that excess value or doing the auto-loan equivalent of what mortgage lenders call a cash-out refinance.
Borrowing against he excess value would mean getting an auto equity loan from your original lender, likely with better rates and terms than you could get from a second lender. Doing the auto version of a cash-out refinance would mean getting a new loan against the vehicle that would pay off the remaining balance of the first loan and give you the excess in cash. While you could do this through your first lender, a new lender might offer you equally good or better rates in this case.
Car owners in desperate need of cash might consider doing this. But it would just extend the time before you get title to your car and keep you burdened with monthly payments. In the case of a second loan against just the excess value, it would increase those payments.
Want an expensive car without a down payment?
If you wonder about this because you want to buy a car but can’t get approved for a loan large enough to pay for it, it might be best to just finance a less expensive car.
Because they’re secured by the vehicles they finance, car loans are easier to get than many other loans. If your lender will only finance part of the car, meaning you have to pay the remaining cost as a down payment, this is because your credit and income indicate that financing more would be too risky. That new cars lose value the moment you drive them off the lot also limits how much lenders will loan against a vehicle.
If you’re dead set on getting that car, you might be able to cover the down payment with a personal loan. However, think twice before you overstretch your finances with an unnecessary car or personal loan.
Is it OK to have two auto loans at once?
Whether or not it’s a good idea to have two car loans really depends on your financial situation.
How to decide if you should get that second car loan
Before you take out a second auto loan, here are some things to ask yourself.
- Can you afford a second monthly payment? Remember that interest rates influence how much the payments will be.
- Are you OK with lowering your credit score? Although this will depend on your individual financial situation, you could see your credit score drop when you apply for a second car loan. It also increases your debt-to-income ratio.
- Is it necessary? Any loans are a big financial commitment. Be sure this is something you really need and can financially handle before you commit.
- Do you have a strong income? If you have excellent credit and a strong income, an additional auto loan may not have that big of an effect on you. If this is the case for you, then having an additional auto loan should be fine.
How to get a second auto loan
Talk to your lender or another financial institution about getting an additional car loan. You will likely have to show them proof of residence, car insurance, and identity, and you’ll need to authorize a credit check so they can find out your credit score.
What lenders look for
Lenders tend to be pickier when giving out a second car loan. Because of this, it could prove to be harder to obtain a second auto loan than it was to get the first loan.
Key things second-car-loan lenders look for
Here are several things lenders look for when considering giving out a second auto loan:
- Annual income — Lenders will want to see that you are making enough money to be able to pay off a second auto loan.
- Credit history — This will demonstrate to your lender that you can make payments on time and are a responsible borrower.
- Credit score — The higher the credit score, the better your chances are of getting a second car loan. A good credit score is generally at 650 or higher.
- Debt-to-income ratio — Your application will likely be denied if your debt-to-income ratio is above 43%.
- Down payment — Most lenders value higher down payments. If you can, try to get a down payment that’s more than 20% of the vehicle’s value.
- Employment — A lender may ask for proof of employment to verify income.
- Loan-to-value ratio — A loan-to-value ratio compares how much your car is worth to how much your loan is for. The preferred ratio depends on the lender.
- Value of the second vehicle — If your vehicle is inexpensive, it means the loan will be smaller. And the smaller the loan, the more likely it is that your loan will be approved.
Tips for getting a second loan
Getting a second automobile may be necessary, but it could be tough to get that additional loan.
How to get approved for a second car loan
If you’re unsure that you meet the requirements for a second loan, here are some tips you can try:
- Find a less expensive car. Though it may not be the car of your dreams, a more affordable one means a smaller loan. You also might be able to make a bigger down payment (percentage-wise) with an inexpensive car. Both of these are appealing to lenders.
- Get a co-signer. If you can’t afford a second loan on your own, see if a spouse or parent can help you by co-signing the loan. Having a co-applicant can mean your application gets assessed based on a better credit report and higher annual income value. Not every lender allows co-applicants, however, so keep this in mind when finding the right lender for you.
- Save up for the down payment. Lenders love it if you’re able to put down a payment of at least 20% of the car’s value. So, take some time to save up for a large down payment. It may mean waiting to get the car you want, but it could make the difference in getting that loan you need.
- Take some time to improve your credit score. Again, you may want a car right now. But if you have a poor credit report and can wait, you might want to take some time to improve your credit score first. Things you can do to improve your credit score include making payments on time, acquiring more credit and using it wisely, and paying off past-due accounts.
Alternatives to second car loans
While an additional car loan may be the option experts would recommend most of the time, there are a few other ways you can afford a second car. Some may dip into a home equity line of credit (HELOC) to afford their second car. Others may purchase at least part of their car with their credit card. Some may even borrow from their 401(k). While these options are available, for most people, a second auto loan will likely be the best option in the long run.
Does having 2 car loans hurt your credit?
Although it depends on your finances, applying for a second car loan tends to lower your credit score for a time. However, if you make your payments regularly and on time, having multiple lines of credit can help improve your credit score over time.
What credit score is needed to buy a car?
Minimum credit score requirements vary depending on the lender. You will often need a credit score of at least 660 to qualify for competitive rates. It is possible to qualify with a lower credit score, but the better the credit score, the more likely you are to get a car.
How many car loans can one person have?
While there is no limit to how many car loans you can have at once, more loans mean more debt. Be sure you’re responsible when taking out auto loans.
Can I have two cars under one loan?
While this is possible and can seem convenient (just one monthly payment), it probably isn’t a good idea in most cases. This is because both cars will be held as collateral for a single loan. So, if you can’t afford one of the cars, this arrangement will result in both vehicles being repossessed.
- Most people take out a second car loan when they need an additional car.
- The terms to get a second car loan are generally more strict than the terms for a first car loan.
- Lenders will look at your credit report, debt-to-income ratio, down payment, and more to determine your eligibility for a second loan.
- You can increase your chances of getting a second loan by having a co-signer, getting a less expensive car, or having a larger down payment.
Find the best auto loan for you
There is no one-size-fits-all car loan. Individuals face unique situations and have different needs. Review and compare auto loans to find the one that best fits your financial situation. Taking time to review and compare auto loans can also help you get the best deal possible. Review and compare auto loans here.
View Article Sources
- Auto loans — Consumer Financial Protection Bureau
- Car Financing Alternatives — Consumer Reports
- Financing or Leasing a Car — Federal Trade Commission
- How do I qualify for a car loan? — Chase
- Best Auto Loans for a New Car — SuperMoney
- Debt to Income Ratio: More Important Than Credit Score? — SuperMoney
- How to Get Approved for a Car Loan — SuperMoney
- International Student Car Loans: What You Need to Know — SuperMoney
- Ultimate Guide to Auto Equity Loans — SuperMoney
- Ultimate Guide to Luxury and Exotic Car Loans — SuperMoney
- Unsecured Auto Loans: 4 Reasons You Should Get One — SuperMoney
Camilla has a background in journalism and business communications. She specializes in writing complex information in understandable ways. She has written on a variety of topics including money, science, personal finance, politics, and more. Her work has been published in the HuffPost, KSL.com, Deseret News, and more.