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Sometimes we want to have two cars to fill our garage. The first could be a reliable sedan with great gas mileage so we can commute to and from work each day. The other might be a sporty utility vehicle for fun on the weekends.
Fortunately, there is no legal limit on the number of auto loans you can have in your name! However, there is a practical ceiling to what you can afford to pay each month based on your earnings and credit score.
Your projected debt-to-income ratio is the lending requirement that drives your qualifications for that supplemental vehicle, whether you are adding to an existing loan or financing everything all at once.
Second Car Loan Requirements
The underwriting requirements for a second auto loan work very much as they did during your existing contract. You will have to demonstrate the ability to afford the combined projected monthly payments, given the interest rate and repayment term associated with your current credit score.
Start an auto loan request here. (Affiliate Link) An online lender will review your qualifications based on the criteria outlined below.
Your ability to afford the extra monthly payments is the primary second car loan requirement. The lender will calculate your debt-to-income (DTI) ratio using the interest rate and repayment terms associated with your credit score.
Your monthly debt service payments will include auto loans one and two, plus any mortgage, personal loan, and credit card obligations. As you can see from the chart below, the DTI constraints become less stringent as your credit score rises. Both the interest rate and term have a significant impact on the amount you must repay each period.
|Score||Rate||Max Term||Max DTI>|
|Better (700 – 749)||7.5%||60||50%|
|Good (650 – 699)||12.0%||48||45%|
|Poor (550 – 649)||17.5%||36||40%|
It is possible to get a second car loan when you have bad credit – but the odds are low. If you were able to qualify for the first financing round, your low FICO or Vantage score and adverse payment history should not be the limiting factor.
Your ability to fund a deposit and keep the projected DTI below 35% will be what holds you back. Also, common sense dictates that people with poor credit scores near or below 550 should stick with one vehicle rather than stretching themselves too thin by buying another.
- No down payment lenders do exist but make their money back with sky-high interest rates and aggressive collection tactics for delinquent borrowers
- Having enough income to double your monthly auto payments also means that you could be diverting these funds to debt retirement and building an emergency fund instead by maintaining your existing means of transportation.
Buying Two Cars at Once
Buying two cars at the same time with financing employs the same principles as when adding another auto loan separately. You have to demonstrate the earnings capacity to afford the combined monthly payment given your credit score and history on your consumer report.
In this case, you are just completing the transaction all at once instead of in stages over time. However, you should consider the possible consequences to your ratings, and steer away from one consolidated deal if you can.
Financing two cars in your name could have credit score implications that are unique to each individual’s situation. Keep these factors in mind as you weigh the pros and cons of a more substantial concurrent transaction versus two smaller ones occurring at different times.
- A single car shopping inquiry does not hurt your score as much. The rating companies ignore multiple auto-related pulls from a short period because drivers often compare interest rate offers.
- People with high scores today may not be so lucky in the future. Therefore, doubling down now on your purchase could result in more favorable borrowing terms.
- Drivers will low scores today because of thin files, or short histories might benefit from staging the two acquisitions instead of doing them together. Making on-time payments on the first transaction builds a positive history, leading to better terms months later on the succeeding purchase.
Financing two autos in a single loan is possible in theory, but so impractical that most drivers seeking to buy multiple cars simultaneously will opt not to pursue this strategy. Everything boils down to who owns the title at each stage and the consequences of default.
Auto lenders retain ownership of each vehicle title, which they hold as collateral until you retire the full balance owed. Losing two cars to repossession at the same time could prove devastating. Therefore, one loan per vehicle provides more financial flexibility and safety.
Other types of loans allow the driver to take possession of both vehicle titles right away because the lender does not hold the cars as collateral or security. However, these options have other limitations.
- Personal loans are unsecured installment contracts that present higher default risks to lenders because they cannot repossess the collateral. Therefore, expect to pay higher interest rates and find it more challenging to borrow enough money to cover the full cost of two automobiles.
- Home equity loans use the value of your real estate property as security – provided you are a homeowner, and the balance on the existing mortgage is low enough. However, becoming homeless via foreclosure after default can be more detrimental than losing both forms of transportation. Taking a bus, train, or Uber beats sleeping on the streets in a box.