What to Know About Having Two Car Loans

Is it possible to have two car loans at the same time? You might find yourself asking this question if you need multiple vehicles. Maybe you have teenagers in the house who are learning to drive, or maybe you and your partner need more than one vehicle for commuting to your different jobs and for all the different recreational activities you like to do on the weekends. 

Either way, it is not uncommon for a household to want to finance multiple vehicles at the same time. So, is it possible to have two car loans at the same time? What kind of credit do you need? How do you know if you can qualify for a second car loan?

Here's a look at these questions and more as we discuss everything you need to know about having two car loans. 

Is it possible to have two car loans?

Yes, it is possible to have two car loans at the same time. When shopping for a car loan, lenders will take a look at your credit history, income, and your debt-to-income ratio to determine if you are eligible for the loan. 

As long as you are able to meet the lender’s requirements, then you should be able to get a second or even third car loan with no problem. Remember, if you have more than one car loan, then your debt-to-income ratio will be greater. The higher your debt-to-income ratio is, the harder it may be to secure additional financing in the future.

How do I know if I can get two car loans?

If you are wondering if you can get two car loans, then you should first know what banks look for when granting a car loan. Also, it is important that you do some analysis of your personal finances to determine if you can afford a second car loan and if it works within your budget. 

Here are some factors that you and your lender will and should consider when determining if you can get a second car loan.

1. Debt-to-income ratio (DTI)

Your debt-to-income ratio measures how much you pay in existing debt payments each month compared to how much income you have coming in. If you divide your total debt payments each month by your overall monthly earnings, you’ll get your debt-to-income ratio.

Lenders typically require that borrowers have a debt-to-income ratio no higher than 43%. A score below 43% shows that a borrower may be better equipped to manage their debts. That being said, some lenders may even want to see a debt-to-income ratio below 36% before approving a new line of credit. A good general rule to remember is that the lower your debt-to-income ratio is, the more likely you will be approved for a second car loan.

2. Credit score 

Your credit score is an indication of how well you have managed your finances in the past. Lenders use this information to determine whether or not you should be approved for a new loan. If you have had trouble managing debt in the past, then it’s likely that lenders will be hesitant to lend you money for an additional car loan. The main factors that determine your credit score are payment history, the total amount of debt you have, the length of your credit history, your credit mix, and whether or not you have recently opened any new credit accounts. 

Of these factors, the two most important are payment history and total debt. If you have a history of missed or late payments, or if you have had a major credit event like a repossession or foreclosure, then your chances of being approved for additional car loans can be pretty low. Additionally, if you have a high amount of debt such as a mortgage, other car loans, student loans, and credit card debt, then your credit score is going to be lower and your DTI will be higher. A lower credit score and higher DTI can greatly reduce your chances of being approved for an additional car loan. 

3. Affordability and budgeting

Before applying for an additional car loan, make sure you can afford the additional monthly payment each month. This includes both principal and interest payments as well as any additional fees or taxes associated with each of the loans.

Here’s how to create a budget to see if you can afford a second car loan: 

1. List out all of your income sources - This should include your employment income and the income of your partner if you are married. Also, if you have any money coming in from other sources like part-time jobs or side gigs, include that as well.
2. Subtract fixed expenses - Expenses include rent, mortgage payments, utility bills, other loan payments you have, and any other fixed payments you make each month. This could also include things like payments for streaming services, various types of insurance payments, and more. 
3. Subtract your variable expenses - These are expenses like groceries, entertainment, and money you want to put into your savings. You will need to estimate these expenses the best your can.
4. Take a look at how much money you have leftover - Calculate the number and ask yourself if it’s enough to take on an additional car loan and still have some emergency money left over to cover unplanned expenses. If not, then you may need to reconsider taking on a second car loan and find an alternative solution to obtaining an additional vehicle. 

A FINN car subscription may be for you. Browse cars available at 6-12 months terms. Monthly rates include insurance, maintenance and roadside assistance. 

4. Insurance costs

Adding multiple vehicles to your insurance policy will increase your premiums a substantial amount. Calculate that into your monthly budget to see if you can afford not only the additional payments for the new car loan but also the increased insurance costs.

5. Loan-to-value ratio (LTV) 

The LTV is the amount of money you are borrowing for your vehicle compared to its value. The purpose of calculating it is for the lender to understand their risk. Generally, lenders prefer that borrowers have an LTV of 80% or less when taking out a loan. For example, if you are buying a car worth $20,000, most lenders would like you to have a minimum down payment of $4,000 and borrow no more than $16,000. 

If your LTV is too high, the lender may not approve the loan and if a lender is willing to approve a new car loan with a high LTV, they will most likely offer a high interest rate. To avoid being stuck with a high-interest car loan, try to make sure your down payment covers at least 20% of the purchase price. 

How to get approved for a second car loan

Here are some tips to help increase your chances of being approved for an additional car loan.

1. Improve your credit score

To improve your credit score, first, focus on paying off any outstanding debts. If you can afford it, pay down as much credit card debt as you can or pay off any current loans you may have. Decreasing your overall debt can improve your credit score and lower your DTI. Both of these can help increase your chances of being approved for a new car loan.

Also, continue making timely payments on all of your accounts. Payment history is the largest influence on your credit score. And avoid applying for any new lines of credit in the months leading up to your application. Taking on new lines of credit can hurt your credit score because each time a lender or bank considers you for a new line of credit, they need to do a hard inquiry to obtain your full credit report. Hard inquiries can bring down your credit score, although not significantly. 

In addition to working to improve your credit score, you should review your full credit report to make sure there are no errors or inaccuracies. You can obtain one free copy of your credit report for each of the three major credit bureaus (Equifax, Experian, TransUnion) once every 12 months. If you find anything wrong or suspicious on your credit report, you have the right to dispute any errors or inaccuracies to get the issues resolved. 

2. Maintain steady employment and income

Lenders prefer a borrower with stable employment and a consistent income source when reviewing loan applications. To increase your chances of getting approved, make sure you have documentation like paystubs and several years of tax returns before applying. 

3. Reduce your debt-to-income ratio

The lower your DTI, the better so focus on paying down existing debts as much as possible before applying for a new loan.

4. Consider a co-signer

If you have a low credit score and/or a high DTI, consider having a co-signer on the loan to help improve your chances of getting approved. Just make sure that your co-signer has good to excellent credit and understands what is at risk when they are signing up to be a co-signer. 

If for any reason you are unable to make the loan payments, then the co-signer will be responsible to make them on your behalf. If they cannot make the loan payments, then your vehicle may be repossessed by the lender and both your credit score and the credit score of the co-signer will be greatly impacted. 

5. Shop around and compare offers

Different lenders have different requirements for car loans and some lenders may be more lenient than others. The best way to shop around and compare auto loans is to go online and complete a prequalification application. 

By providing some personal and financial information, you can know within a few minutes the likelihood of being approved for the amount you need to purchase the car you are looking at. 

How a second car loan affects your credit score

Whenever you apply for a new line of credit, the lender will do a “hard inquiry”. This allows financial institutions to obtain your full credit report. Every time a financial institution requests a hard inquiry, it can temporarily lower your credit score by several points. 

That is why it is important to consider prequalifying when shopping for a new car loan. When you complete a preliminary credit check, it is what is known as a “soft pull”. Soft pulls give lending institutions a snapshot of your credit history with no impact on your credit score.

Alternatives to a second car loan 

If securing and managing a second car loan sounds like a process that you aren’t looking to take on at the moment, then consider a car subscription. Car subscription services are a viable alternative for many families to get the vehicles they need without needing to qualify for additional car loans. 

Final thoughts

Having multiple car loans is a perfectly normal thing for many Americans. Determine your eligibility for a second car loan by analyzing your current financial situation. If you find that you can’t qualify for a second car loan, alternatives such as paying cash for a used vehicle or signing up for a car subscription service are options you can take. 

With a FINN car subscription, make one monthly payment that includes insurance, maintenance and roadside assistance. Choose your car, get approved and have it shipped directly to your doorstep. Start looking for your car today.