Aspotowed/GetTyimages; Illustrations by Hunter Newton/Bankrate
While raising a car is relatively easy, getting a loan for a second car while still paying for the first vehicle can be a little more difficult. You will need a strong credit score, a reasonable debt load, and a stable income.
What to expect from a second car loan
Even if you plan to sell your current vehicle once you have your second vehicle, you may face obstacles when applying. Insurance costs may be high. Eligibility for a second car loan is more difficult, and the added liabilities could undermine your chances of qualifying for other credit products in the future.
Increased scrutiny from lenders
If you decide to apply for a second car loan, your lender will take a closer look at your creditworthiness, current debt load, payment history and income to determine if you are eligible. Lenders also ask for detailed vehicle information to measure whether the selling price is reasonable or whether the vehicle is worth it.
Another factor that lenders consider is your debt-to-income ratio. This shows how much you are paying on the bill and how much you are bringing in. Therefore, if your second car loan is spending too much of your income, you could be denied funding.
Additional insurance costs
Adding a second car to your insurance policy will increase your car insurance premiums. Ask your insurance company if you want to offer discounts to customers who guarantee two or more vehicles, or explore the best rated auto insurance company at the bankrate to ensure the most affordable rates available.
You must sign up for a multi-car discount and qualify by parking your car at the same address. The amount of discount varies by provider, but it’s definitely worth asking to keep your money in your pocket, especially as you’ll pay for an additional car.
It’s difficult to find credit after securing a loan
Getting a second car loan can reduce your credit score and in the short term it will be difficult to qualify for additional credit. Each time you apply for funding, you will generate a rigorous inquiry. If you want to avoid multiple hits with your FICO score, complete all your car loan applications within two weeks.
In the long term, the second car loan increases total debt and adds new loans. This can affect your credit utilization rate and the average age of your credit account. If you have two car loans, the lender may consider you more risk, which could lead to higher interest rates or rejections.
When the second car loan makes sense
Undertaking unnecessary debts will lower your credit score, make it difficult to access additional credits, and there is the risk of debt delays and defaults. However, it may be necessary and beneficial to undertake debt. Getting a second car loan makes sense.
- You can afford to buy monthly payments.
- You qualify for competitive loan terms.
- Additional vehicles are required.
In these cases, the second car loan will not have a major negative impact on your credit. The first will cut down on your debts, but don’t worry if a second loan is essential. Paying your loan on time can bounce your credit score and improve it further.
How to improve your chances of getting a second car loan
If you need to use two car loans at once, you can increase your chances of winning car loan interest by working on your credit before applying.
- Dispute Credit Report Error. Check your credit report regularly as inaccurate information can drag your credit score. If you have any incorrect information, please submit a dispute promptly.
- Pay back the spin debt. Credit utilization is based on revolving obligations. If you carry your balance with multiple credit cards, you will pay before applying for a second car loan.
- Improve your credit score. The biggest factor that affects your credit score is your payment history, so set up Autopay or other reminders to never miss a payment. A long history of on-time payments can be approved when you apply for a second car loan.
- Find a way to increase your income. The extra income will improve your DTI and will probably help you qualify for your loan. It also provides more money for monthly payments on your second car loan or other existing debt.
Conclusion
You can take on a second car loan. There are steps you can take to get the highest interest rates on your car loan. Ultimately, you want to prove to your lender that you are a good credit risk and deserve to be approved for a second car loan.
When you’re ready to start shopping for your loan, take your time using Bankrate’s auto loan calculator to estimate your additional monthly loan payments.
