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Key takeaways
- You can take out a second car loan, but the lender will likely examine your application for financing more closely.
- Keep in mind that having two car loans at once typically means higher auto insurance premiums.
- Your credit score could also dip when you apply for financing, making it more challenging to qualify for credit in the near future.
- Fortunately, disputing credit report errors and paying down revolving debt can improve your chances of securing a second loan with competitive terms.
It’s relatively simple to finance a car, but getting a second car loan when you’re still making payments on your first vehicle can be a bit more challenging. You will need a strong credit score, a reasonable debt load and a stable income to qualify for funding and comfortably manage the monthly payment on both car loans.
What to expect with a second car loan
Even if you plan to sell your current car once you get a second vehicle, you could face roadblocks when you apply — and insurance costs may be higher. It’s more difficult to qualify for a second auto loan, and the added debt could harm your chances of qualifying for other credit products in the future.
Increased scrutiny from lenders
When you decide to apply for a second car loan, lenders will take a closer look at your creditworthiness, current debt load, payment history and income to determine if you qualify. The lender will also ask you for detailed vehicle information to gauge if the sales price is reasonable or more than what the car is worth.
Another factor lenders consider is your debt-to-income ratio, which shows how much you’re paying in bills versus how much money you’re bringing in. Your first car loan increases your debt-to-income ratio, or DTI, and the second loan will increase it further. So you could be denied financing if a second car loan takes up too much of your income.
Bankrate tip
While some bad credit auto loans may be available for a second car purchase, the lender needs reassurance that you have the means to make on-time payments each month.
Additional insurance costs
Your auto insurance premiums will increase when you add a second car to your policy. Ask your insurer if it offers discounts for customers insuring two or more vehicles, or explore Bankrate’s best-rated car insurance companies to ensure you’re getting the most affordable rate available.
You must register for a multi-car discount and park your cars at the same address to qualify. The amount of the discount varies by provider, but asking is worth a shot to keep more of your money in your pocket, especially since you’ll be making an additional car payment.
Difficulty finding credit after securing the loan
Your credit score may fall when you take out a second car loan, making it difficult to qualify for additional credit in the short term. Each time you apply for financing, a hard inquiry is generated. If you want to avoid multiple hits to your FICO score, complete all your auto loan applications within two weeks.
In the long-term, a second car loan will increase your total debt and add a new loan. This could lead to an impact on your credit utilization ratio and the average age of your credit accounts. When you have two car loans, lenders may view you as more of a risk, which could lead to higher interest rates or denial.
When a second car loan makes sense
Taking on unnecessary debt lowers your credit score, makes it harder to access additional credit and can put you at risk of falling behind or defaulting on debt. However, there are times when taking on debt is necessary and can even be beneficial. Borrowing a second car loan makes sense if:
- You can afford the monthly payment.
- You qualify for competitive loan terms.
- You need an additional vehicle.
In these cases, a second car loan won’t have a significant negative effect on your credit. While it will initially lower your debt, don’t worry if a second loan is essential. If you make your loan payments on time, your credit score will bounce back — and may even improve.
How to improve your chances of getting a second car loan
If you need to have two car loans at once, you can increase your chances of scoring a low auto loan interest rate by working on your credit before you apply.
- Dispute credit report errors. Inaccurate information can drag down your credit score, so review your credit report regularly. If there is any incorrect information, file disputes promptly.
- Pay down revolving debt. Your credit utilization ratio is based on your revolving debt. If you are carrying a balance on multiple credit cards, pay them down before you apply for a second auto loan.
- Improve your credit score. The biggest factor impacting your credit score is your payment history, so set up autopay or other reminders so you never miss a payment. A long history of on-time payments may help your chances of being approved when you apply for a second auto loan.
- Find ways to increase your income. Extra income will improve your DTI, possibly helping you qualify for your loan. It will also give you more money for monthly payments on your second auto loan or other existing debt.
Bottom line
It’s possible to take on a second car loan, and there are steps you can take to get the best interest rate on your auto loan. Ultimately, you want to prove to the lender that you’re a good credit risk and deserve to be approved for a second car loan.
When you’re ready to start shopping for a loan, take time to use Bankrate’s auto loan calculator to estimate additional monthly loan payments.
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