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It’s relatively simple to finance a car. But can you have two car loans? Yes, but getting a second loan when you’re still making payments on your first can be a bit more challenging. You will need a strong credit score and adequate, stable income to cover the monthly payment on both car loans.
What to prepare for when taking out a second car loan
Even if you plan to sell your current car privately once you get a second vehicle, you could face roadblocks when you apply. Furthermore, insurance costs may be higher. After taking out the second loan, you could also be denied credit from other lenders or creditors.
Bankrate tip
Take time to estimate additional monthly loan payments and added insurance costs. That way, you’ll know how the new car loan will affect your monthly budget. You can use our resources for car insurance estimates and our auto loan calculator.
Increased scrutiny from lenders
To decide if you’re a good fit for a car loan, lenders evaluate your:
- Creditworthiness
- Current debt load
- Payment history
- Income
You will also be asked to provide detailed information about the vehicle so they can determine if the sales price is reasonable or more than what the car is worth.
Maybe you’re wondering, “Can I finance two cars with bad credit?” There is even more scrutiny when you take out a second car loan. Since you are trying to add more debt to your plate, the lender needs reassurance that you have the means to make timely monthly payments.
The lender will look at your debt-to-income ratio, or DTI. The debt-to-income ratio shows how much you’re paying in bills vs. how much money you are bringing in. Lenders know your first car loan increases your DTI, and the second loan will increase it further. You can find your debt-to-income ratio using our DTI calculator. You could be denied financing if your debt load is high for your income.
Additional insurance costs
Your auto insurance premiums will increase when you add a second car to your policy. The process of adding a second vehicle is relatively simple and quick. When you call the insurance company, be sure to have this info handy:
- Vehicle identification number (VIN)
- Year
- Make
- Model
- License plate number
Some providers also offer discounts to customers who insure two or more vehicles on the same policy. It’s referred to as a multi-car discount, and you must register and park all your cars at the same address to qualify.
Difficulty finding credit after securing the loan
Unfortunately, your credit score may take a temporary hit when you take out a second car loan, making it difficult to qualify for additional credit in the short term. Each time you apply for financing, a hard inquiry is generated. If you want to avoid multiple hits to your FICO score, keep all your auto loan applications within two weeks.
Creditors and lenders assess your creditworthiness when you apply for debt products. A higher score means you pose less of a credit risk and could get approved for a credit card or loan product with favorable terms. But a low score could result in a denial or higher interest rate.
How to improve your chances of getting a second car loan
Here’s how to increase your approval odds if you’re looking to finance another car:
- Dispute credit report errors. Inaccurate information could be dragging down your credit score. Visit AnnualCreditReport.com to get a copy of your credit report from the three major credit bureaus — Experian, TransUnion and Equifax. Review each page and circle any errors you notice. Once you’ve reviewed all three, file disputes with the appropriate credit reporting agency promptly.
- Pay down revolving debt. Ideally, you should have a steady source of income that is more than enough to cover your monthly debt payments. The payments for installment loans are set in stone, but you can get a lower minimum payment on your credit cards and improve your debt-to-income ratio by paying down the balances. Look out for signs that you have too much debt.
The bottom line
It’s possible to take on a second car loan, and there are steps you can take to help you get a good deal. Get a copy of your credit report, view your score to see where you stand and consider paying down revolving debt if your debt-to-income ratio is high. Ultimately, you want to prove to the lender that you’re a good credit risk and deserve to be approved for a second car loan with a competitive interest rate.
FAQs
So, if you were asking yourself, “do multiple car loan applications hurt your credit?” the answer is yes, but not by a lot.
Can you finance 2 vehicles at the same time? ›
It's relatively simple to finance a car. But can you have two car loans? Yes, but getting a second loan when you're still making payments on your first can be a bit more challenging. You will need a strong credit score and adequate, stable income to cover the monthly payment on both car loans.
Can 2 car loans be combined? ›
Yes, it is possible to consolidate your car loans. However, since there's no such thing as a dedicated auto consolidation loan, you'll likely need to use another form of financing, like a personal loan, home equity loan or balance transfer credit card, in order to make it happen.
Can I get another loan if I already have one? ›
Borrowers can have more than one personal loan, but how many loans and how much you can borrow depends on a lender's requirements and whether they'll approve a second or third loan. Managing multiple personal loans can also strain your budget, so it's worth considering alternatives before turning to another loan.
Is it smart to finance 2 cars? ›
In most cases, taking out a second car loan will increase your debt-to-income ratio.
What credit score do you need to buy a 50k car? ›
To buy a $50,000 car and get favorable auto loan options, it's best to have a credit score in the prime or super prime categories. Prime borrowers are those with a credit score within the 661-780 range, while super-prime borrowers fall within the 781-850 range.
What credit score is needed to buy a car? ›
The credit score required and other eligibility factors for buying a car vary by lender and loan terms. Still, you typically need a good credit score of 661 or higher to qualify for an auto loan. About 69% of retail vehicle financing is for borrowers with credit scores of 661 or higher, according to Experian.
What is the debt to income ratio for a car loan? ›
What is a high debt-to-income ratio?
| Debt-to-income ratio | Rating |
|---|
| 0% to 36% | Ideal |
| 37% to 42% | Acceptable |
| 43% to 45% | Qualification limits for many lenders |
| 50% and above | Poor |
Jan 4, 2024
Yes, you can be a cosigner for someone if you already have a car loan yourself. In fact, being a cosigner can help you boost your own credit score if the primary borrower is making all their payments on time.
Can I refinance my car loan? ›
Can I refinance my car with the same lender? Yes, many lenders will allow you to refinance your existing car loan. Keep in mind that lenders may not offer refinancing as an option. Especially if your vehicle is in poor condition, has low value, or you have few payments remaining on your existing loan.
If you do it right, debt consolidation might slightly decrease your score temporarily. The drop will come from a hard inquiry that appears on your credit reports every time you apply for credit. But, according to Experian, the decrease is normally less than 5 points and your score should rebound within a few months.
Can you roll credit card debt into a car loan? ›
For those who don't own their home, they may be drawn to some new creative auto financing being offered by some car dealerships, which allows them to consolidate their unsecured debts (again credit card, line of credit, payday loan) into their auto loan.
How long do you have to wait to apply for another loan? ›
If you're looking to reapply for a personal loan with the same lender that already denied your application, you will likely need to wait a while before submitting a new request. This time frame varies depending on the lender and may range from 30 days from the date of last application to up to six months.
Can I have a personal loan and car loan at the same time? ›
Yes, you can apply for a car loan within two months of taking a personal loan. However, consider potential impacts on your credit score and debt-to-income ratio. Evaluate your ability to manage additional monthly payments and check with lenders for their specific policies.
Is it better to have many small loans or one big loan? ›
Several small funds are best procured when you're are facing some financial emergencies that require little funds. One big loan may be procured only when you wish to clear out several debts or obtain funds to carry out big investments such as purchasing cars, houses, lands, business start-ups, etc.
How much will a car loan drop my credit score? ›
Shopping around for a car loan can potentially impact your credit score. That's because every time you apply for a loan and have a hard credit check, your score can drop by roughly 1 to 5 points. Fortunately, there are ways to avoid major credit damage. One way is to look for lenders who offer car loan preapproval.
Do multiple auto loan inquiries count as one? ›
If you're shopping for a new auto or mortgage loan or a new utility provider, the multiple inquiries are generally counted as one inquiry for a given period of time. The period of time may vary depending on the credit scoring model used, but it's typically from 14 to 45 days.
