You already have a car, but you may be in a position where you need a second car, whether it’s for yourself, your significant other, or your children. If this is the case, you may be contemplating your options. Depending on your finances, you could be asking yourself, Can I get a second car loan? The answer is a resounding yes! But there are things to keep in mind.
Camino Federal Credit Union has been serving the Montebello community since 1941 with financial products tailored to each member’s situation and sincere, attentive guidance. Learn everything you need to know about getting a second auto loan.
Can I Get a Second Car Loan?
Yes, you can get a second car loan. You can get as many auto loans as a lender will approve for you.
While no legal restrictions stand in the way of having two auto loans simultaneously as long as you can meet the lender’s requirements, there are practical limitations to consider. You usually cannot have more than one loan per car, though you can potentially refinance the loan to get a better deal. Still, it may be tougher to qualify for a second loan.
Lenders will only approve you if your income and debt can handle the added monthly expense. If your credit score is poor or your debt-to-income is above 43%, you will need help getting loan approval. Remember, every time you take out a loan, you increase your debt-to-income (DTI) ratio.
Just as importantly, if you do not have a good credit score, you will likely face higher rates and get approved for a smaller loan amount, which presents limitations on the car you can afford. It would help if you had good to excellent credit to receive a low Annual Percentage Rate (APR).
If you are approved for a second auto loan, remember to add your new vehicle to an existing car insurance policy and purchase comprehensive and collision coverages. Ensure you have a stable income that will cover the monthly payment on both loans.
Should I Try to Get Two Auto Loans?
Determining whether you should get a second auto loan is as important as answering the question, Can I get a second car loan? And there are several things to consider before buying a car.
If you already have excellent credit, limited debt, and a strong income, a second car loan may not have as big of an impact. Still, life happens, and your situation can change quickly. This decision could impact your finances significantly if not carried through properly.
As a result, it’s good to be thoughtful when making a decision. Consider the type of car you can afford and the long-term impact of the monthly payments associated with it, and ask yourself: Do you need a second car, or do you want it?
If you need a second car, a second auto loan could be a great choice.
When Should I Get a Second Car Loan?
Everyday situations in which it makes sense to take out a second auto loan include:
- When your household needs more than one vehicle. Maybe you and your partner both work, or maybe you have several kids whom you need to take to conflicting events, like soccer games or other school activities. If you can afford to pay two loans at once, then getting a second auto loan could make sense.
- When you sell or trade vehicles for work. If you sell or trade vehicles as a job or hobby, then getting a second car loan for a vehicle you are planning to sell the vehicle could be a good option. Just ensure you can afford to make the loan payments if it takes time to sell the vehicle.
- When you can afford it. If you have a high amount of steady, disposable monthly income, then taking out a second car loan should be manageable. Whether it’s a luxury or a necessity, if you can afford it, it could be a huge help. Still, it could be less expensive to pay off your current car loan faster instead, so speak with an advisor about your financial situation before making any decisions.
- When you have a small business that requires two or more vehicles. Many small business owners, such as painters, contractors, florists, bakers, and other trades that require transportation, need more than one vehicle. As you get more clients and generate more profit with another vehicle, the second car could end up paying for itself.
- When you have more than one residence. While this seems like a luxury, several situations could necessitate having more than one residence. If you have another house that’s out of state, for example, or live in another city for part of the week for work, a second car could make sense as a more convenient option.
- When you have a child who needs a car to get around. Maybe you have a high school-aged child who just got their license and is ready to experience their first taste of freedom, or maybe you have a college-bound child who’s preparing for their life on campus. Regardless, this could be a great way to get them a vehicle.
What to Prepare for When Taking Out a Second Car Loan
Preparation is key. During the application process, there are several roadblocks you might face.
Scrutiny from Lenders
Whenever you apply for an auto loan, anticipate scrutiny from lenders, especially when getting a second car loan. Lenders will assess your creditworthiness, current debt load, payment history, and household income to determine if you are a good candidate for financing.
Most lenders will request detailed information about the car you are planning to purchase to determine if the sales price is reasonable or exceeds the car’s value. Since you are adding more debt, the lender needs to be sure you can make punctual monthly payments.
If your credit score is low or you have a substantial debt load compared to your income, lenders might deny financing.
Increased Insurance & Maintenance Costs
Anticipate that your auto insurance premiums will increase when you add a second car to your policy. The process for adding a car could be simple and shouldn’t be too time-consuming. When working with your insurance provider, you will need your:
- Vehicle identification number (VIN)
- The year, make, and model of the vehicle
- The license plate number
Depending on your provider, you may receive a discount when insuring two or more vehicles on the same policy. This discount is also called a multi-car discount. To qualify, you have to register and park both cars at the same address.
Also, do not overlook maintenance costs. Two cars mean double the maintenance costs, which can be a significant added expense, as well as increased parking fees.
Difficulty Getting Credit After Financing
When you apply for debt products such as loans, creditors and lenders will evaluate your creditworthiness.
A higher credit score means you pose a lower risk for them, and you can receive approval for a credit card or loan product with favorable terms. A lower score, however, could result in a higher interest rate or outright denial.
Still, when you take out a second car loan, your credit score will possibly take a temporary hit, making it harder to qualify for more credit in the short term. This hit is due to your credit utilization ratio, which accounts for 30% of your credit score.
When you secure financing for a second car, it impacts your credit utilization record, but you could recover it after a few months of punctual payments to the lender because payment history is the biggest component of your credit score.
Lower Approval Odds
Because lenders perceive a second car loan as risky, the odds for approval are generally lower. Lenders might assume you will struggle to make payments, which will cost them more money if you default. Still, you can take several steps to improve your chances of approval.
How Can I Improve My Chances of Getting a Second Car Loan?
You can take several steps to put the odds in your favor if you are considering getting a second car loan. You need good or great credit, typically 670 or higher, to qualify for low, competitive interest rates, and you will need a sufficient amount of stable income.
To improve your chances of gaining approval for a second auto loan, we advise:
- Disputing credit report errors. Credit report errors can have a significant impact on approval and the terms you receive. Before applying for financing, dispute these errors by visiting AnnualCreditReport.com for a copy of your credit report from the three major credit bureaus (Experian, TransUnion, and Equifax) and filing disputes with the appropriate agency as soon as possible.
- Paying down revolving debt. You will preferably have a stable source of income that significantly outstrips your monthly debt payments. Paying down revolving debt could result in more favorable terms by improving your debt-to-income ratio and, consequently, your credit score. If you do not have the income to pay down revolving debt, you may not be able to afford a second loan.
- Saving for a sizable down payment. The larger the down payment, the less you will need to borrow. Lenders will often likely be apprehensive if they see you have taken out a second auto loan, but a smaller amount will seem less risky as it will result in a more manageable monthly payment.
Using a co-signer. A co-signer is someone who is responsible for payments if you default on them. Reaching out to someone and requesting that they assume this responsibility can help reduce the risk you pose to lenders.
Do You Need Help Financing Your Car? Let Us Know!
The answer is clear if you were asking yourself, Can I get a second car loan? A second auto loan is certainly an option, but whether or not it is a good idea depends on your financial situation. We have a range of financing options to suit your needs, wherever life takes you. Let Camino help you determine if this makes sense for you. We want our members to find the best option that works for their needs to build a bright financial future. We offer competitive auto loan rates and honest, attentive guidance throughout the entire process. Please give us a call at 800-835-3400 to speak with one of our Member Advisors, or visit our Contact Us page for more information.