How many car loans can you have? There is no limit to how many car loans you can have at a go. However, the only thing is that it may be very hard to qualify for multiple auto loans. And having more than one car loan outstanding might not make sense financially.
Qualifying for multiple car loans depends on your individual financial circumstances, credit score, and whether you can afford the loan repayment.
Requirements for Getting More than One Car Loan
You can get a second car loan even if you already have one, but it might be harder than when you got the first loan. This is because having an existing loan automatically increases your debt-to-income (DTI) ratio, making you seem riskier to lenders.
Always keep in mind that you can’t get a second loan on the same car. Your lender owns the car until the repayment of the loan is done, and they won’t share ownership with any other lender. However, you can just refinance your existing loan to get better terms. Nevertheless, below are some of the eligibility requirements for getting multiple car loans.
Credit Score and History:
A high credit score and good credit history increase your chances of getting a second loan with better terms. Also, this means you will be able to get good terms on your loan that can lower your monthly terms or save you money.
Household Income:
Lenders want to know your household income. Higher household income means a better chance of getting a second auto loan approval.
Debt-to-Income (DTI) Ratio:
Lenders calculate your DTI ratio to know if you can manage more debt with your current monthly income. For instance, if you already pay $1,000 a month on student loans and $500 on a car loan, they will check your debt-to-income ratio to know if you can handle an additional car loan.
When you apply for any loan, lenders look at all your debts, such as your student loans, existing car payments, and mortgages, to see if you can afford more. This helps them know if you are a good or risky borrower.
When Does Multiple Car Loans Make Sense?
Having less debt is more advisable than taking multiple loans. The less debt you have, the less financial risk you face and the less you pay to lenders as interest. However, below are some of the situations in which having more than one car loan can make sense:
When Your Home Needs More Than One Vehicle
Many families need more than one car. And getting two auto loans can help if you can afford the repayments. If you are one of these families, you might want to consider a joint auto loan. This uses both your and your partner’s credit scores. And it can make it easier to qualify than getting two separate loans.
Selling or Trading Vehicles
If you sell or trade vehicles as a job or hobby, a second car loan can help you get a vehicle to sell. Keep good records and ensure that you can afford the repayments even if the car doesn’t sell right away.
Affording a Second Car Loan
With a good source of income, you can get a second car loan just because you want another car. However, ensure that you think about the costs carefully. It might be cheaper and advisable to pay off your current loan faster instead.
What to consider when taking out more than one car loan
Although taking out another car loan can be a good option, you need to weigh all the benefits and drawbacks as they apply to your circumstances. Specifically, you need to consider how it can impact your financial health, your credit score, and your monthly insurance premiums.
Owning more than one car can automatically increase your insurance premiums. Ensure that you add the cost of the extra insurance to the calculation of your budget when determining whether you can afford another car. Also, you need to know that the interest rates you will pay to lenders will also increase, since you are paying for more than one car.