Can You Have Two Car Loans?
If you want to purchase a second vehicle but currently lack the entire sum of cash, then a car loan can get you into the car you want. You may already have an existing car loan or want to buy more than one car, so you’re wondering whether it’s possible to finance another vehicle with a second loan. If this describes you, read on to find out what you can do.
Can You Have Two Car Loans?
You certainly can have two car loans at the same time, but it could be more challenging to get approved for the second loan. Because the initial car loan is currently outstanding, the lender is likely to scrutinize your qualifications more closely. To determine your eligibility, they examine several factors. One factor is your credit score, which functions as a reflection of your responsibility with debt and ability to service loans. The higher your credit score, the likelier you are to get approved for a larger loan with lower interest rates. This, in turn, influences your purchasing options.
Another factor is your regular income. Usually, lenders look at how much you earn per year. They want to know that you make enough to service two loans. Not only that, but they also assess whether your income is sufficient to cover the costs associated with vehicle ownership, such as registration fees, gasoline, maintenance, and repairs. In general, higher incomes increase your chances of approval for a second auto loan.
The third factor is your debt-to-income (DTI) ratio, a percentage representing the amount of debt you owe relative to the amount of money you earn within a given period. There are two types of DTI: front-end and back-end. The former refers to housing costs, while the latter encompasses the entirety of your monthly debt payments minus everyday expenses and medical bill payments. For an auto loan, lenders typically examine your back-end DTI. The lower the percentage here, the better your loan candidacy.
The final factors that lenders consider before approving a car loan relate to the vehicle. First, they look at the estimated value of the vehicle you want. A vehicle with a lower price tag means you have a higher chance of approval, as there’s less risk associated with the loan amount. Then they look at how much you can put down on the vehicle. Again, this relates to risk. The larger your down payment, the smaller the loan balance and, therefore, the higher your potential to repay it.
Reasons To Finance a Second Car
For many people, having a second vehicle is not only useful but also necessary. Take, for example, a household with two primary earners. If their respective jobs require different commutes, it would be practical for each of them to have their own car. Similarly, a large family with driving-aged children would benefit from a second vehicle as well, as the children may need a way to get around for school and with friends.
Business owners are another group of people for whom a second vehicle would be advantageous. Various commercial operations require personal transport to carry out their duties, and larger operations need more vehicles to get all of their work done.
What Are Your Options for a Second Loan?
If you’ve determined that you’re in a good position to get approved for a second car loan, consider your lender options. You can choose between a dedicated auto loan or a personal loan. The primary difference between these options is that an auto loan must go toward the purchase of a vehicle, while a personal loan has no restrictions on what you do with it. An additional point of distinction is that the lender of an auto loan takes the vehicle as collateral. Therefore, if you’re unable to service the loan, the lender repossesses the car.
There may be additional points to consider when deciding between a personal loan and an auto loan. One is that auto loans tend to have lower interest rates than personal loans. According to the U.S. Federal Reserve, two-year auto loans are almost half as much as personal loans in terms of the annual percentage rate. Another point is that down payments are a typical requirement for auto loans. Your willingness to put down a particular sum of money helps to minimize the total loan amount.
Keep the above in mind as you decide how you’d like to finance your vehicle. If you’re capable of putting down a significant down payment, you’d probably benefit from pursuing an auto loan, which may save you money in interest in the long term. If, however, you can’t afford a down payment and are facing challenges getting approved for an auto loan, a personal loan could be a sensible option.
Tips for Taking Out a Second Car Loan
Here are some tips to keep in mind if you decide to take out a second car loan:
One Vehicle, One Loan
If you’re looking to get a second loan on a vehicle on a single car, lenders are unlikely to approve your loan application. The act of seeking such a loan may suggest that you’re having difficulty servicing your initial debt associated with the vehicle. Should you get approval for the loan, it could have undesirable effects on your credit score, monthly loan payments, and overall debt obligations.
Find a Cosigner
A cosigner is someone who jointly signs the loan, entering an agreement in which they share the loan obligation with you. Should you be unable to make a payment on the loan, the cosigner would be responsible for covering the amount owed. This type of arrangement can improve your loan candidacy since it helps to assure the lender that the loan will be serviced in full. To find the ideal cosigner, consider someone you know who has a good credit score, who earns a high income, and with whom you have a strong, trusting relationship.
Whether or not to take out a second loan to finance another vehicle is a big decision. We’re always happy to help drivers get into the car of their dreams and offer competitive in-house financing options on our vehicles. If you have any questions about your options, please feel free to reach out to us through our contact page or call us at 330-752-8884. You can also stop by the dealership at 1875 Brittain Road to speak with a representative in person.