How many car loans can you have? While there’s no strict limit on the number of car loans you can have simultaneously, securing multiple auto loans can be challenging. Moreover, having multiple outstanding car loans might not be financially prudent. Your ability to qualify for multiple car loans hinges on your financial situation, creditworthiness, and capacity to manage loan repayments.
Requirements for Getting More than One Car Loan
Just like I have mentioned above, 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:
With a high credit score and a good credit history, you’re more likely to qualify for a second loan with lower interest rates and more beneficial 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. A higher household income means a better chance of getting a second auto loan approval.
Debt-to-Income (DTI) Ratio:
By calculating your DTI ratio, lenders can gauge your capacity to manage new debt obligations alongside your existing 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 Do Multiple Car Loans Make Sense?
Generally speaking, having less debt is 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 stable and reliable income, you may be eligible for a second car loan, allowing you to purchase another vehicle for personal preference. 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. When contemplating owning multiple cars, it’s crucial to assess the potential effects on your financial well-being, credit score, and monthly insurance costs.
Notably, having more than one car can lead to higher insurance premiums. Be sure to factor in the additional insurance expenses when evaluating your budget and determining whether you can afford another vehicle. 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.