There is no limit to how many car loans you can have at one time. However, it might be difficult to qualify for more than one, and having multiple car loans outstanding might not make financial sense. In practice, few people have more than two auto loans at once.
Qualifying for a second (or third, or fourth) car loan depends on your individual circ*mstances, credit history, and whether you can afford the loan.
Key Takeaways
- You can have as many car loans as you qualify for, but it might not be the best choice.
- Lenders will take into account your income, credit score, and debt-to-income (DTI) ratio when deciding if they can give you a loan for a second vehicle.
- Make sure you can afford the monthly repayments on all your loans.
- Taking out a second car loan can be a good option for families who need two cars, if you buy and sell cars for a living, or if you are sure you can afford a second loan.
- You cannot have more than one loan per automobile.
Eligibility Requirements for More Than One Car Loan
You can apply for a car loan when you already have one, but getting a second loan might be more difficult than it was when you got the first loan. This is because your debt-to-income (DTI) ratio will be higher for the second loan because you will have the added debt of the first loan.
Note, also, that you can’t take out a second loan on the same vehicle. This is because for most car loans, your lender will legally own your car until you pay back the loan, and your lender won’t want to share ownership with another. You can, however, refinance a car loan to potentially get a better deal.
When you apply for a second car loan, your lender will take into account a number of factors before deciding if they can give you the loan, including your income, debt-to-income (DTI) ratio, and credit score.
Credit Score and Credit History
You are more likely to qualify for a second auto loan if you have a high credit score and a good credit history. This may also mean that you’ll get better terms on your loan that could save you money or lower your monthly payment.
Household Income
Your lender will want to know how much you earn as a household. If you earn more, you are more likely to be approved for a second car loan.
Debt-to-Income (DTI) Ratio
Lenders seek to determine if you are able to furnish your debt with the income you make. They determine this by calculating your debt-to-income (DTI) ratio, which is the relationship of your income to your debt, specifically, the percentage of your income that goes towards paying your debt.
For example, if you are currently paying $1,000 a month in student loans and $500 a month on your car loan, your debt-to-income ratio will determine if your monthly income is enough to cover these costs.
If you are applying for a mortgage, the lender will look to see if your income is able to cover your student loans, your car payments, and your mortgage payments. Similarly, if you try to take out a second or third car loan, that amount of debt will be included in all of your current debt, and a lender will look to see if your income can cover it. In essence, a lender is determining your borrowing risk.
You can use Investopedia’s car loan calculator to work out how much a car loan will cost you, including the total cost of a loan and monthly payments based on different interest rates and loan amounts.
When Multiple Car Loans May Make Sense
In general, holding less debt is more ideal than taking out several loans. The less debt you have, the less you’ll pay to lenders in interest, and the less financial risk you face. However, there are some instances in which having two or more car loans can make financial sense.
When Your Household Needs More Than One Vehicle
Lots of families need two cars. As long as you can afford to pay two auto loans at once, this can be a good way of getting the vehicles you need. If this applies to you, you could consider getting a joint auto loan.
A joint auto loan takes into account the credit scores of both you and your partner, and it can be easier to qualify for than two auto loans in the same name.
You Sell or Trade Vehicles for Work
If you sell or trade vehicles as a profession or hobby, you might consider getting a second car loan for a vehicle that you are planning to sell. Maintain good records, and make sure that you can afford the loan repayments if you cannot sell the vehicles.
If You Can Afford It
If you have a high, dependable monthly income, then there is, of course, no reason why you can’t take a second car loan just because you would like another car. Be realistic, however, about how much the second loan will cost you. It may be less expensive to pay off your car loan faster instead.
Considerations When Taking Out a Second Car Loan
Though taking out a second car loan can be a sensible option, weigh all the pros and cons as they apply to your situation. Specifically, consider:
- How it will affect your financial health: Make sure you can afford two monthly car repayments. Missing payments will have a negative effect on your credit score, which can last for up to seven years.
- Your credit score: Applying for an auto loan—whether your first, second, or third—can decrease your credit score temporarily. If you are planning to apply for a loan to make a major purchase, such as applying for a mortgage to buy a house, consider delaying getting a loan for another car, because it can temporarily decrease your credit score and potentially increase your loan costs.
- Your insurance premiums: Owning multiple cars can increase your insurance premiums. Factor in the cost of additional insurance into your budget calculation when you determine whether you can afford a second car.
What Is the Average Monthly Payment for a Vehicle?
The average monthly payment for a new car in Q2 2023 was $729. For a used vehicle, it was $528. Monthly payments have increased due to consumers opting for shorter-term loans because of the higher interest rate environment.
What Is the Average Car Loan Interest Rate?
In Q2 2023, the average loan interest rate for a new vehicle was 6.63%. For used vehicles, it was 11.38%.
How Do Multiple Car Loans Affect Your Credit Score?
Applying for a loan, including any kind of car loan, can temporarily have a negative effect on your credit score. When you officially apply for funds, your lender will perform a credit check to determine your creditworthiness. This is considered a hard inquiry; however, if you make all your loan payments on time, the long-term effects of having multiple car loans can be positive.
How Many Extensions Can You Get on a Car Loan?
The number of extensions that you can get on a car loan depends on your lender. Each lender has different criteria for granting extensions. If you have a good credit score and a low debt-to-income (DTI) ratio, then a lender will be more likely to grant you an extension.
When Should You Refinance Your Car Loan?
The best time to refinance a car loan is often when interest rates are low so that you can save money on a new loan compared to your original loan. That way, you can lower your monthly payments, reduce the total interest you pay, or both. Generally, you’ll want to wait to refinance until you have had your loan for about a year (but not near the end of the loan) to get the maximum benefit.
The Bottom Line
You can have as many car loans as you qualify for, but there are downsides to consider when you take on more debt. Lenders will take into account factors like your income, credit score, and debt-to-income (DTI) ratio when deciding if they can give you a loan. Even if you can qualify, make sure you can afford the monthly payments.
Taking out a second car loan can be a good option for families who need two cars, if you buy and sell cars for a living, or if you can afford a second loan.
