How many car loans can you have

By Nooreen B
Modified on June 6, 2023
How Many Car Loans Can You Have

An auto loan can be an excellent way to buy a car without taking on the total costs upfront. The right financing option will make your car payment affordable. You can find a car loan through several financial institutions, including a bank or credit union, a car dealership, or a private lender. If you already have a car loan, you may be curious whether you can get another one. 

Technically you can have more than one car loan, and in fact, you can have multiple of these installment loans, but it may not be the best idea. Additionally, it may be challenging to qualify for more than one at a time. These are a few reasons why most people only have up to two auto loans at a time. Below are all the ins and outs of having multiple car loans and whether doing so is the right decision for you. 

Can You Have Multiple Car Loans on One Car?

You won’t be able to have multiple loans on one car because lenders will not share ownership of the vehicle with one another. With an existing car loan, your original lender will have legal ownership of the car. And until you pay back the auto loan in full, that title will belong to them.

Even though you cannot have multiple auto loans on one car, you can refinance an existing car loan with another. This will work because you will take out a new loan with another lender or sometimes the current lender to pay off the original loan. Ideally, the new loan will have better interest rates, flexibility, and more convenient repayment terms. One thing to keep in mind with refinancing a car loan is whether the car is worth the cost of a new loan. 

And so, although you can only have one loan on one car at the same time, you can have multiple car loans if you plan on purchasing more than one vehicle. However, you definitely need to consider the cost of the new loan and whether it is an intelligent financial decision. 

Eligibility Requirements for More Than One Car Loan

If you already have a loan you are paying off and are inquiring about a second car loan, it can be pretty challenging to get another one, even if your credit score is excellent. As mentioned above, most people will get approval for up to two auto loans; any more than that can be difficult. 

In addition to your credit score and credit history, your second car loan lender (or third, fourth, etc.) will pay close attention to the following variables:

Your Household Income on a Monthly Basis

Lenders will need to see proof of your monthly household income. You can show them your total income with documents like bank statements, pay stubs, letters of income, etc. This will give them a good idea of what kind of payment you may be able to afford. 

Debt to Income Ratio

Another important factor that lenders will pay attention to is your debt to income ratio. This ratio compares your income to the debt balances that you have. If you are paying off an existing auto loan, it will also be included in the debt portion of this ratio. Lenders will really pay attention to this part when considering you for a second car.

Your Ability To Pay Back the New Loan

Your ability to pay back a loan will encompass your income, debt to income ratio, and monthly expenses. Based on this information, a lender will determine how much of a loan they feel comfortable giving out.

The Value of Your Second Car 

If you aren’t getting your second car loan from a car dealership that you are purchasing the car from, your car loan lender will need to inspect your potential purchase before deciding whether it has the necessary value. 

The Down Payment You Are Bringing to the Table

Another factor that will help determine eligibility is whether or not you have a down payment. A large down payment will make it easier to qualify for lending.  

All of these reasons make it common for borrowers to only have one, maybe two, car loans simultaneously—it is because lenders are pretty strict if you are repaying an existing car loan. And so, although you may be able to purchase a car with bad credit, getting a car loan on a second vehicle with the same credit criteria will be tough.

If you have enough income to do so, consider paying for a second or third car outright. You will save on interest rates and don’t have to worry about strict eligibility requirements. 

Alternatives to a Car Loan

You don’t need a car loan specifically to finance a vehicle. In fact, you can use any other kind of loan option to purchase a car. Keep in mind that just like car loans, lenders for different loan options will also consider your credit score, credit history, debt to income ratio, and your ability to repay the loan. Additionally, not every loan type will help you take care of the total cost of the car but can help pay for a portion. Here are some alternative loan options that can work well for a car purchase to consider: 

A Personal Loan

Personal loans are loan options that provide steady monthly installments and  are some of the most versatile loan options available. The loan amount can range from a few hundred up to several thousand dollars, depending on your finances and the lender you choose to work with. Repayment options can be flexible with these loans, so they may be suitable for various budgets. With the right credentials and lender, you could find an affordable loan to cover a partial or entire cost of a second or third vehicle. 

Credit Cards Instead of an Auto Loan

Most people have a few credit card options they can use. If you already have one, you may want to consider it to cover a car purchase. Keep in mind that interest rates for credit cards can be pretty high, so it may not be the best financing option, but it is an option you can consider. Additionally, if you need to apply for a new credit card, your credit score and credit history will play a significant role in determining eligibility. So bad credit borrowers will have to turn elsewhere. 

Home Equity Loans

Home equity loans are options for homeowners. If you own a home, you can use its equity to borrow extra funds. The good thing about these loan options is that they may be able to cover the entire car purchase; however, your home will be at risk if you cannot repay your loan.

Business Loans Rather Than Borrowing An Auto Loan

If your second or third vehicle is a required cost for your business, a business loan can help! These loans come in all kinds of varieties and interest rates, and you may not even have to borrow based on your personal credit score. When looking to finance a car for business expenses, you should definitely start with a business loan. 

Remember that every car loan or other loan type you inquire about will require a hard credit check that shows up on your credit report. Multiple inquiries in a short period can negatively affect your credit score! 

Best Case Scenarios for Multiple Auto Loans

Before thinking about getting a second, third, or fourth vehicle on a loan, it is crucial to think about your finances and whether a new car is a necessity. There are definitely some good reasons for having more than one car loan; here are some of them:

If You Need a Second Vehicle for Your Work 

All sorts of trades and occupations require a secondary vehicle. For example, painters, bakers, artists, landscapers, contractors, etc. If you need a second car for work, a second loan makes practical and financial sense. This is especially true if the current vehicle you own does not fit the size requirements for your job. The best-case scenario is that even with two car loans, you’ll be able to have more income coming in and add more room to your budget. 

When You Need More Than Once Vehicle in Your Household

If you have a spouse, child, or another family member who lives in your household and needs another car, then taking out a second auto loan may be the right choice for you and your family. When purchasing a vehicle for another adult in your household and you have bad credit, consider a joint auto loan which uses both borrowers credit scores. If the other person has good credit and income, it can increase your chances of approval for a second car loan. 

You Have the Financial Capability to Finance One or More Vehicles

Let’s say that you have a decent income, not a lot of debt or monthly expenses, and you want to purchase another vehicle on a loan. In that case, although it may not be a necessity, treating yourself to a new car won’t throw your finances upside down.  

If You Sell and Buy Vehicles for Work

Another scenario in which it may make sense to finance a second car with an auto loan will be if you sell or buy vehicles for work. There are many reasons why car sellers may want to have a second or third vehicle on an auto loan. For example, having inventory is essential, and sometimes that may mean having to finance a car to eventually sell it.

The Bottom Line With Two or More Auto Loans 

Whether you have a strong income, excellent credit, and great financial health, taking on multiple auto loans is a huge financial responsibility and can mean a considerable added monthly expense. An additional payment means less monthly income in your checking account, even if you can afford monthly repayments. And so, before taking out another car loan, really think about your financial situation and whether you need multiple cars.

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