While there is usually no limit as to how many car loans you can have, it may not be in your best interest to take out multiple loans for a single car. Multiple loans means multiple interest rate charges, fees, etc. that can end up being a major drain on your finances. Instead, it may be a better idea to refinance for a single auto loan.
Auto loans can be an excellent way to buy a car without taking on the total costs upfront. According to news outlet CNBC, the average auto loan payment for a new vehicle in 2023 is $725 per month.1 The right financing option can help 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 auto 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.
What To Consider Before Taking Out a Second Auto Loan
|Loan Approval Process
|Different lenders have varied approval processes. Research and understand each lender’s criteria.
|Loan Types Available
|Explore different types of auto loans like secured, unsecured, and dealership financing.
|Market Interest Rates
|Keep an eye on current market interest rates, as they influence the cost of taking a new loan
|Consider diversifying lenders to avoid dependency on a single financial institution.
|Evaluate the maximum loan amount each lender is willing to offer for a second loan on a car.
|Investigate whether lenders offer flexibility in repayment, like deferment or grace periods.
|Check if lenders impose penalties for paying off the loan earlier than the agreed term.
|Consider the quality of customer service, responsiveness, and support each lender provides.
|Online Access and Tools
|Evaluate the online platforms, tools, and resources lenders offer for loan management.
|Loan Disbursement Time
|Consider how quickly each lender can disburse the loan after approval.
|Look for any special offers, discounts, or promotions that lenders might be offering.
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 an additional 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 an auto 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 for a personal loan can be flexible, 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
What is the difference between an auto loan vs. home equity loan? While auto loans use a vehicle as collateral, home equity loans use the borrower’s home as collateral. 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 auto 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 an additional 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.
FAQ: Getting a Second Loan On Your Car
Taking a second automobile loan will result in a hard inquiry on your credit report, which might temporarily lower your credit score. Managing two auto loans responsibly by making timely monthly payments can eventually have a positive impact on your credit score.
Yes, having several auto loans can affect your overall debt-to-income ratio, which lenders consider when you apply for other types of credit, such as a mortgage or personal loan.
Consider whether the combined monthly payments of two auto loans fit comfortably within your budget. Ensure that it doesn’t strain your finances or hinder your ability to manage other financial responsibilities.
The interest rate of a second auto loan depends on various factors like your credit score, lender policies, and market conditions. It may be higher if the lender perceives a higher risk due to the existing car loan.
You can use the same lender, but exploring different lenders allows you to compare terms and interest rates, helping you find the best deal for your second car loan.
Having two auto loans means insuring two vehicles, which could increase your total insurance premiums. Consider this additional cost when planning your budget.
Consolidation might be possible through refinancing options where you combine both loans into one, but this depends on the lender’s terms and your eligibility.
If managing monthly payments becomes challenging, consider contacting your lenders to discuss payment options or consider refinancing to obtain more favorable terms.
A longer-term may result in lower monthly payments but could incur higher total interest costs over the life of the loan. Consider the term length that aligns best with your financial goals and repayment capacity.
Having a co-signer with a good credit score can improve the chances of approval and possibly secure better loan terms, but it also makes the co-signer responsible for the loan if you default.
Having several vehicle loans might limit your eligibility for future car loans due to the increased debt-to-income ratio and the impact on your credit score.
Consider your credit score, most recent credit report, monthly income, existing debts, interest rates, loan terms, and your ability to manage multiple monthly payments before applying for more than one car loan.
CreditNinja’s Thoughts About Having 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, CreditNinja encourages everyone to really think about your financial situation and whether you need multiple cars.
Having trouble keeping up with your auto loan monthly payment or other monthly debt payments? In financial emergencies like this, consumers can turn to CreditNinja for affordable personal installment loans! CreditNinja has specialized in bad credit loans since 2018, and have helped more than 275,000 people get through tough financial situations.