One car loan might seem like a lot, but two loans could sound impossible. However, believe it or not, you can have two car loans at once and manage them successfully.
However, the process of qualifying for a second loan can be challenging. Additionally, there could be other downsides even when you are approved, and you’ll want to consider them before you agree to take out two car payments.
What to know about taking out a second car loan
Like most loan processes, getting a second car loan comes with risks and challenges. However, awareness of these risks and challenges can help you make a better decision or be better prepared for what to expect when you follow through with the decision.
Lower approval odds
Having two car loans is regarded as risky to lenders. They might assume you will struggle to make your payments, ultimately costing them money if you default on your loan. The assumption that you’re a high-risk customer would result in you receiving more denials from lenders as well.
Higher insurance costs
Your insurance premium typically increases when you have multiple cars on a plan. This is important to note because you are already using additional funds towards a second vehicle. Some insurance companies provide multi-car discounts, so you might be able to find some savings along the way.
Temporary credit score hit
Applying for loans comes with a hard inquiry on your credit, and it can also cause a drop in your credit score. The hit your credit score takes might be more impactful if you recently applied for major credit of any kind.
Keep this in mind when looking to take out a second car loan. You might want to think about whether or not you recently applied for credit and have any other major credit-related purchases because these details can assist you in planning more accordingly.
Potential difficulty managing payments
Managing any form of payment can be tricky, but this is especially true for larger ones, like a monthly car payment. Fortunately, your car payment is a set amount, and it will be due at the same time every month, so you can plan for it on a monthly basis. However, make sure you keep up with your payments so that you can avoid additional stressors or complications.
Is having two car loans a good idea?
Life happens, and your situation can change in an instant. Having two car loans could end up being an expected or unexpected life change.
Either way, make sure you create plans based on your financial situation. Cars are depreciating assets, meaning they lose value over time, which is also important to remember.
It is essential to consider this when looking at the type of car you can afford and the long-term impact of the monthly payments associated with the car. If you need or want a second car and you can afford it, then having two car loans can be a good idea.
How to increase your approval odds for a second car loan
When considering the challenges that having a second car loan can propose, you can plan for most of them, which can help you increase your approval odds. Here are some ways you can set yourself up for success when looking for a second car loan.
Save up for a sizeable down payment
The larger your down payment, the less money you will need to ask for from lenders. A lender will likely be on high alert if they see that you have taken out a second car loan, but asking for a smaller amount could appear less risky to those same lenders. Additionally, a smaller loan can give you a more digestible monthly payment in terms of your own personal finances.
Use a co-signer
Being a co-signer means you are taking responsibility for the loan that you are co-signing for in the event that the original owner defaults. Reaching out to someone and proposing the idea of them being a co-signer on your loan can feel like a huge ask, but it can also benefit you greatly.
A co-signer who has good credit can help you appear less risky to lenders, which will improve your approval odds greatly. As the person receiving the help, just make sure you stay on top of your payments so that the burden does not fall on the person who is selflessly helping you.
Additionally, your co-signer should know that being added to your loan could impact their credit score and their ability to take on a new loan. Make sure they are understanding of this before you proceed.
Choose a less expensive vehicle
Like a down payment, a less expensive vehicle is also helpful. You can look more appealing to creditors when you opt for a less expensive car. Also, your debt levels will be lower, making you look more likely to keep up with your payments.
Work on improving your credit score
Before you start the process of taking on a second loan, work on improving your credit score. Start by paying down any existing debt, making your payments on time and waiting for hard inquiries to fall off your credit report if you have any.
Two loans are okay
Suppose you are considering the idea of taking on an additional car loan. In that case, it is okay to follow through with your decision if you have taken the proper steps to prepare. Make sure you pick a car you can afford, consider offering a down payment and be prepared for your insurance costs to increase. Knowing what to expect can help you determine if you need two car payments and if it is best to do it right now.
Can I get another car loan if I already have one?
The approval process might be a little complicated, but you can get another car loan if you already have one.
When should you refinance your car loan?
Ideally, you shouldn’t refinance your car loan for at least six months. That way, you can give your credit a chance to bounce back from when you applied for your car loan. It will also help you to prove that you can make your payments on time with your current loan. That will give you a better chance of getting a better rate overall.
Can you get a second auto loan?
Yes, you can get a second auto loan.