Can You Have Two Car Loans At Once?

ASphotowed/GettyImages; Illustration by Hunter Newton/Bankrate

It’s relatively simple to finance a car. But can you have more than one outstanding auto loan at a time? In short, 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, a reasonable debt load and an adequate, stable income to qualify for funding and comfortably afford the monthly payment on both car loans.

Second car loan considerations

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.

Increased scrutiny from lenders

You should also expect increased scrutiny from lenders if you decide to apply for a second car loan. Most will take a closer look at your creditworthiness, current debt load, payment history and income to determine if you’re a good fit for funding. The lender will also ask you for detailed vehicle information to gauge if the sales price is reasonable or more than what the car is worth.

Another factor lenders consider is your debt-to-income ratio, which shows how much you’re paying in bills vs. how much money you’re bringing in. They know your first car loan increases your DTI, and the second loan will increase it further. So, 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 upside is that some providers offer discounts to customers who insure two or more vehicles under 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. The amount of the discount varies by provider, but inquiring is worth a shot to keep more of your hard-earned money in your pocket.

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. However, a low score could result in a denial or higher interest rate.

When a second car loan makes sense

Ideally, you only want to finance as much as you can afford to comfortably repay to purchase a vehicle. An additional loan could make sense if the need arises for your household or in these situations.

• You can afford a new loan. If you have assessed your budget and there’s wiggle room for another car payment, another purchase could make sense. In this case, confirm your finances and credit health are in order to secure the best deal on your second car loan.
• You flip vehicles. If you’re in the business of buying cars at a discount and selling them for a profit, taking out a second car loan can help you save on cash. That way, you won’t have to deplete your savings to make the purchase.

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.

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.

When you’re ready to start shopping for a loan, 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.