Buying a second car is all about getting the right financing. But if you’re not sure where to start, it’ll feel like you’re drowning in debt before you even get the keys to your new ride.
The thing is, it can be really easy to get yourself into trouble with multiple classic car loans. Car loans are generally around $33,000. So, if you’re trying to finance two cars at the same time, that’s a lot of money!
Still, a second car loan can be beneficial in the event of an accident or maintenance that takes your primary ride out of commission. And of course, you’ll feel great when you get that dream car you’ve always wanted.
That’s why we’ve put together this detailed guide to car loans. If you’ve ever considered getting several loans, keep reading!
Can I Have Two Car Loans at the Same Time?
You can have more than one car loan at a time, but this doesn’t mean you should. In fact, it’s best to avoid making multiple loan agreements simultaneously.
If you decide to take out another loan, keep in mind that each finance company will have different requirements. Your history with them will also play into whether they’ll approve your application. Some lenders may be more lenient than others with second loans because they trust how well you’ve handled the first one.
The Maximum Number of Auto Loans You Can Have
Generally, lenders will only approve two loans for borrowers, but there’s no limit to how many they can permit. This means you can take out 2, 4, or 6 loans at once.
While this sounds attractive, excessive borrowing can put you in a demanding financial position. It can lead to higher interest rates and payments, as well as negatively affect your credit score.
Overextending yourself with multiple loans can also make it difficult to keep up with repayments. This could cause defaulting on the loan and damage your credit even further.
Should I Get Two Auto Loans at the Same Time?
The answer to this question depends on your financial position. If you have a strong income and good credit, it’s okay to get two auto loans at the same time. However, if you’re already struggling to make ends meet, opening another line of credit will only leave you further in debt.
It’s also worth noting that if you apply for another auto loan while paying down an existing one, your credit score will take a hit. But if you have the resources to finance two cars, there are some instances in which it is helpful to own multiple auto loans.
Every Family Member Must Commute to Their Job
Owning two cars when family members have jobs that require commuting is a necessity, not a luxury. Working families tend to have different schedules, so having a vehicle free at any given time is essential. It would probably make the most financial sense to take out two loans and keep both cars until they’re paid off.
Car Sales Are Your Main Income Stream
If you’re in the business of buying and selling cars, you’ll likely need multiple loans to finance your inventory. In this case, take out as many loans as you need to keep your business running smoothly.
You Run a Business
For many business owners, owning more than one car loan can usually be justified.
Consider a landscaping company owner whose business is growing. Now more trucks are required to get workers from one worksite to the next. Financing is well worth it when the business can make money from these trucks.
How to Get a Car Loan?
There are a few key steps to getting approved for a car loan. Be sure to read the fine print before signing any paperwork and make sure you understand all the fees associated with your loan.
Figure Out How Much You Can Afford to Spend
Before you shop, it is important to know how much money you can afford to spend on a car loan. If you don’t know your budget, how do you expect a lender to figure one out?
Before finalizing the budget, determine what your monthly expenses will be after you buy the new car. This includes things like insurance, registration and taxes (which vary by state), maintenance costs for the vehicle itself, and so on.
Pre-approval doesn’t mean you have a loan, but it will give you an idea of how much money you can borrow. Getting pre-approved will also help determine what type of loan is best for your financial situation and also show that you are serious about getting a car.
Keep in mind that being pre-approved for a car loan doesn’t guarantee you’ll get approval when it’s time to apply, so don’t rely on it as such.
Shop Around for a Lender
Look for lenders who can offer you the best interest rate on your loan and also provide affordable monthly payments based on your income and credit score. When looking at interest rates, make sure that they include all costs associated with owning the car (such as taxes) as well as any fees charged by the dealer itself (like sales tax).
Compare Offers Carefully
To get a good deal, it’s best to check out several offers. Comparing the annual percentage rate (APR) is one way of making sure you’re getting the best deal. You can also compare how long each loan lasts and how much money you will pay overall by looking at the payment schedule.
Pick Your Car
Choose a car that falls within the terms and conditions of your loan offer.
Before deciding, review the loan agreement for a list of excluded cars or car brands. Similarly, some lenders require you to shop through a particular network of dealerships, so check your options.
If you are interested in purchasing a classic car, check if your lender objects to the age of that model.
Choose the Right Type of Loan
Getting a car loan is simple, but it isn’t always easy to choose the right type of loan. Different lenders have different interest rates, fees, and loan terms.
Unsecured vs Secured Car Loan
A secured loan is a type of financing in which you offer collateral. If you can’t honor your loan agreement, the lender can repossess your vehicle.
An unsecured loan does not require you to have collateral, but they have extremely high interest rates.
Fixed-Rate Loans vs Variable-Rate Loans
Fixed-rate loans have the same interest rates over an agreed-upon period. Variable-rate loans change with market changes in interest rates.
Fixed loans offer the stability and reliability of a locked-in rate. Variable rates allow borrowers to enjoy lower interest payments if overall market conditions are favorable.
Requirements for a Car Loan
Outside of proving your identity and residence, you’ll need to have a good credit score for lenders to consider offering you a loan. A down payment is also required by most lenders. It can be as little as 2% or as much as 20% of the total purchase price of the car.
Lastly, you’ll need to prove that your income can cover monthly payments, taxes, and insurance. Some lenders will accept a Social Security number as evidence of income. Others will require pay stubs or tax returns.
What About Classic Car Loans?
The requirements to get a car loan for a classic car are like those for any other vehicle. You’ll need a good credit rating and proof of income. The lender may also request an appraisal of the vehicle.
If your goal is to finance an older classic that doesn’t run, you’ll need to make sure it’s in good condition and can be in a garage where it won’t be exposed to weather damage or theft. It’s also preferred for the car to be road-worthy, but this is not always necessary depending on the lender’s terms of approval.
Requirements for Applying for a Second Car Loan
The requirements for your second loan will probably be the same as your first one, with one exception. If your credit score is below 640, it’s unlikely that you’ll get approval for another car loan. You can check your credit score and get a free copy of your report from CreditKarma.
Improve Your Chances of Getting a Second Car Loan
If you have a history of making payments on time and keeping your credit score around 700, it will help you get approved for a second car loan. Beyond that, here are some other things you can do to improve your chances.
Monitor Your Debt-To-Income Ratio
Your debt-to-income ratio is the amount of money that you spend every month on debt compared to your gross monthly income. Most lenders prefer that this number be less than 36%. So, if you make $5,000 per month, they want to see less than $1,800 in monthly credit.
If yours is higher than 50%, consider taking steps to pay off other debts so that lenders can trust your ability to pay back their money.
Be Prepared With Co-signers
Having a co-signer provides an extra layer of protection for the lender if you cannot repay the debt. If you have trouble making ends meet or suddenly lose your job, your co-signer would repay the loan.
It’s important to remember that when you have a co-signer on a loan, they are just as responsible as you are for repaying it. Choose someone reliable.
Always Be Honest
Lying on your car loan application can lead to serious consequences, including being denied the loan or having to pay more money than you intended. When you fill out your application, be sure to take your time and read through the questions carefully. It’s easy to make a mistake or miss something when you’re in a hurry.
Do I Really Need a Car Loan?
If you have the cash to buy a car, then no, you do not need a car loan. If you can get financing through your employer or some other type of secure financing (e.g., via credit card), then no, again—you don’t need one. However, if neither of these is an option, then yes, you do indeed need one!
What’s the Best Way to Finance a Car?
There are a few ways to finance a car. You can get loans from banks, credit unions, and car dealerships.
You can also save up and buy one outright. Just keep in mind that this method usually won’t work if you’re buying an expensive vehicle or want something newer than five years old. It’s important to look at the price tag of any car before deciding how much money you want to spend upfront versus borrowing it.
How Can I Get a Good Interest Rate on My Auto Loan?
If you want to secure a good interest rate but don’t have a co-signer, there are a few things you can do. Never settle for an unfair deal.
Check Your Credit
First, make sure that your credit score is at least 700 and above. A good credit score will ensure that lenders see you as a low-risk borrower and are likely to give you better terms than someone with less-than-ideal credit.
Increase Your Deposit
Second, decide how much money you can put down on the car before getting financing. In general, the more cash down payment that goes into buying the car means the less debt on your new ride. Hence, lower monthly payments.
Get a Long-Term Loan
The average term for a car loan is about 70 months. Cars that are financed for less than five years have higher interest rates because there’s a greater risk of default by consumers who have taken on too much debt.
Review the Paperwork With a Friend
Finally, get a second pair of eyes to help you read everything carefully before signing any paperwork! Make sure there aren’t any hidden fees lurking within the contract that could come back around later in unexpected ways (and potentially cost even more).
What Happens if You Don’t Pay Back Your Loan on Time?
If you don’t pay back your loan on time, your lender will send you a notice. After you receive this notice, contact your creditor to make payment arrangements or request an extension.
Your lender may also take back the car if you are more than 90 days late in making payments on the car loan. Repossession can damage your credit score, which will make it harder for you to get approved for future loans like mortgages and auto loans. Not only that, but you’ll also have to pay fees and other charges associated with repossession.
In some states, your lender may even be able to sue you for the entire balance of the loan.
Can Someone Else Take Over a Car Loan?
Though it’s not common, it is possible for someone to take over your car loan. The lender must approve the person taking over the loan, so you’ll need to find someone with good credit who meets their requirements. This person will then become responsible for making the remaining payments.
But you should know that in order to transfer the loan, you must also hand over ownership of your car.
Can You Pay Off One Loan Early?
So you’ve decided to pay off your car loan early. Before you go ahead with that plan, there are some things you should know.
Whether you can pay off your car loan faster is in the details of your particular auto contract. Some lenders discourage early payoff because it means they’re receiving less interest.
If your lender allows early payoff, inquire about whether there’s a prepayment penalty. This is a fee you might have to pay for paying off your loan ahead of schedule.
The amount of the fee can vary, but on average it’s about 2% of the loan balance. This means that if you have $10,000 left on your car loan, that’s an extra $200 you’ll need to pay to get out from under your debt.
Managing Multiple Car Loans
If you’re considering multiple car loans, the next step is to speak with a financial advisor. This professional can help you figure out what your current debt load is, how much money you can afford to invest in a car and how much of that you should put down as a down payment.
Once you’ve found the best car loan for your budget, keep in mind these five tips to ensure that you’ll have enough money every month to pay for your loan.
When you have multiple payments due, it’s easy to forget one. To avoid this, opt for email or text message reminders from your lender. You can also set up automatic payments from your bank account or credit card on the days that the payments are due.
Consider Debt Consolidation
The debt consolidation process involves combining all of your credit card, student loan, and auto loan debts into one easily manageable monthly payment. Think about it this way: If you have 10 different loans with different interest rates, then you are paying more in interest than if you merged those loans under one lender at one rate.
Set the Right EMI Amount
In setting up a strategy for multiple car loans, you need to consider your income and what you can comfortably afford in expenses. Set your EMI (Equated Monthly Installment) to reflect what you’re left with after you pay your monthly bills. It helps to use an online calculator to estimate what EMI would be best for you.
If you’re paying so little each month that it won’t make a dent in your debt, consider making adjustments.
Remember that an EMI should be affordable—not a burden! If there isn’t enough surplus cash left over after you have paid everything off each month, then lower how much money goes toward paying back each installment.
Raise Your Car Loan EMI When Your Income Grows
Your EMI is calculated using your monthly income and the money you pay each month toward debt. When it comes time for repayment, lenders use your current income as a benchmark and adjust the EMI accordingly.
Over time, as your income grows, raise your EMI to match your new financial situation. This will help you pay off your debt faster and save money on interest payments. Before you do this, however, check with your lender to see if they’ll allow it.
Change Credit Card Dues to EMIs
One of the easiest ways to reduce your overall interest is by converting your credit card dues into EMIs. You’ll end up paying less on those debts, which means you’ll have more money to go towards wiping out what’s still owed on your auto loans.
The major catch here is that it’s not always possible to do this with every single credit card loan (or even any one). However, if it is possible, it’s worth considering.
Get Approved for Multiple Auto Loans
The good news is you can have as many car loans as your lender will approve. So take advantage of your financing options.
We know how scary it can be to think about having so many classic car loans, but we also know that the benefits outweigh the risks—and that’s why Favorable Loans is here to help! We’re here for people like you who want to feel secure about their financial future but still enjoy the vehicle of their dreams. Visit our office to speak with a professional about your loan options.