Borrowers with an existing auto loan may need another vehicle. Usually this involves a second car loan. 

For example, you might have a spouse or child that needs a vehicle and has poor credit or a very limited credit history and is unlikely to qualify for auto loan approval from a lender. 

Can I Get a Second Car Loan if I Already Have One?

Yes. Consumers may obtain a second car loan, but depending on various factors it can be more difficult to be approved for the additional auto financing. Particularly, if you have limited remaining discretionary income after paying other expenses each month.  

Lenders evaluate applicants for car financing by considering your credit score, credit history, current income, etc. Assuming you have reasonably good credit, the bank or other lender’s primary concern is whether you can pay the additional monthly expense.

Decide how much you can afford to spend on a second vehicle using a loan calculator to assess payment scenarios based on low or high-interest rates across different loan repayment terms.

In the meanwhile, get a recent copy of your credit report to confirm your FICO score and look for any errors that must be corrected. Check with lenders in the car finance market regarding loan preapproval, including your current lender, and see who might offer you a lower interest rate.

After obtaining preapproval from a lender that offers you a competitive interest rate, you can begin your vehicle search. Car dealerships typically have an excellent credit network of lenders that might compete with better annual percentage rates and other loan terms.

Consider pursuing vehicles being sold by individuals, which are often less expensive. You will need to find a lender offering private party auto loans, which are still secured loans geared specifically for buying a car from a private seller.

If the second vehicle will primarily be driven by a spouse or child, you may consider being a cosigner on the loan. 

If this person has no credit history or bad credit history, acting as a cosigner might represent an opportunity to assist them with establishing or improving their credit.

A cosigner assumes a legal obligation for repaying the loan if the primary borrower defaults on the agreement. Cosigning does not translate to having rights of ownership or control over the vehicle; however, the cosigner assumes a role that places their good credit at risk.

How Many Car Loans Can One Person Have?

There is no limit to the number of car loans that an individual can have, which is also the case with credit cards, personal loans, etc. It will likely become increasingly more difficult to qualify for subsequent car loans as the payments consume more of your remaining income.

If you are planning to finance another purchase soon, such as a home mortgage, you must be cognizant of your debt-to-income ratio.

Mortgage lenders will often require a back-end debt-to-income ratio of no more than 36%, which is calculated using the following formula:

Total monthly debt payments / Total monthly income

If you have an excessive debt-to-income ratio, you may be hindering your ability to finance other purchases. Further, lenders view you as “overextended” and vulnerable to defaulting on your obligations if an unforeseen financial setback occurs.

Keep in mind that it might make more sense to pay cash for additional vehicles, particularly if they are not necessary for daily transportation. This would allow you to avoid accruing further debt and paying the interest on the debt.

Should I Get a Second Car Loan?

When deciding on whether to pursue a second car loan, you should conduct a financial self-assessment. Once you determine the estimated interest rate that you will qualify for, you can project the monthly payments to assess the potential affordability.

The current national average loan rate for a new car is roughly 4.09% and for a used car, it is 7.98%. The following table illustrates the overall amount of interest you would pay on a vehicle loan according to varying interest rates

The Impact of Car Loan Interest Rates 

Source: Calculator

If you find yourself unable to secure a second car loan with a reasonable interest rate, you might be better off postponing the purchase and working toward increasing your income and/or boosting your credit score.

What is a good credit score to buy a car? Typically, a score of 660 is necessary for “good” rates and 781 for “excellent” rates.

Can you lease a car with bad credit? Drivers with a credit score below 670 are unlikely to qualify for most leasing options.

What are some options for boosting your credit score? To boost your credit score, you may consider obtaining a secured credit card, being added as an authorized user on someone else’s credit card account, or using a credit builder loan from Credit Strong. 

Does Having Two Car Loans Hurt Your Credit?

Having two auto loan payments alone should not hurt your credit score. However, it could create difficulty in obtaining loan approval for additional (future) financing such as student loans, personal loans, a mortgage, etc. 

One reason why car buyers with multiple loans and car payments may struggle to qualify for additional financing is having a high debt-to-income ratio. Banks, credit unions, and auto lenders evaluate a prospective borrower’s amount of disposable income when assessing risk.

For example, assume a borrower with $1,000 in monthly income has two current debts that require combined monthly payments of $600. Here, the consumer has $400 in remaining discretionary income each month and a debt-to-income ratio of 60%.

Per Experian, many lenders require borrowers to have a debt-to-income rate below 43%, with below 36% being preferred.

Keep in mind that applying for or opening multiple credit accounts may have an adverse impact on your credit score. Each time that a lender checks your credit history, an entry or “hard” credit pull is documented on your credit report and remains for two years.

Many lenders perceive multiple recent or abrupt applications for credit accounts as a “red flag.” This activity may be seen as an indicator of risk that suggests a borrower has encountered recent financial problems.

Fortunately, the majority of credit scoring models today now consolidate multiple credit inquiries that occur over a short time into a single entry because they recognize that consumers “shop around” to compare interest rates. 

Can You Add One Car Loan to Another? 

The process of combining two or more debts is known as consolidation. In this context it establishes a new loan to pay off two cars. To clarify, you would not be adding the second car to the existing loan that applies to the first car.

Even if you were purchasing two new vehicles at the same time, the lender would typically issue two separate loans. This makes things simpler in the event of a loan default that requires the repossession of a vehicle.

Assuming that you are unable to locate a specialized auto consolidation loan, consolidating more than one car loan most commonly would require either qualifying for a personal loan or obtaining a home equity loan.

A new personal loan used for consolidating two car loans is an unsecured loan, which will generally have a higher interest rate than a typical car loan that is secured by using the vehicle as collateral in the case of a default.

Another option exclusively for homeowners is a home equity loan for consolidating both car loans. This type of loan uses the home as collateral and will likely have more reasonable interest rates; however, this option is likely to incur potentially significant closing costs.

Regardless of whether a consumer has an existing car loan or not, lenders will generally analyze the prospective borrower’s financial picture in roughly the same manner. A lender must calculate risk based on an applicant’s current income, existing debts, and credit history.

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