You can get a second car loan when you already have one if you want another vehicle for your spouse to drive, or if you need a truck to support a new business venture.
Fortunately, there is no legal limit on the number of auto loans you can have in one name! However, a practical ceiling exists to what you can pay monthly based on your earnings and credit score.
Your projected debt-to-income ratio is the lending requirement that drives approvals for that supplemental vehicle, and your score, down payment, and annual earnings go into the equation.
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Second Car Loan Requirements
When you already have one in your name, the underwriting requirements for a second auto loan work as much for your first car. Given your other borrowing qualifications, you must show you can afford the combined projected monthly payments.
DTI Ratio
Your projected debt-to-income ratio (DTI) is a critical second auto loan requirement because it measures your ability to double your monthly payments without becoming delinquent.
DTI = Monthly Debt Service/Monthly Income
The maximum debt-to-income ratio for a car loan varies by lender but needs to be under 55% with the most lenient finance companies and could include several monthly payments in the equation.
- First auto loan installments
- Second car loan installments
- Mortgage or rental payments
- Unsecured person loans
- Credit card minimum payments
Credit Score
A good credit score is a second auto loan requirement, as lenders use this underwriting tool to set your interest rate, sometimes establishing a rigid threshold for approvals.
The minimum credit score needed to finance a car varies by lender. Still, the interest rates they charge follow a repeatable pattern, which impacts your monthly payment, which is part of the DTI numerator.
Average Auto Loan Interest Rate by Credit Score
| Score Range | New Auto | Used Car |
|---|---|---|
| 579 or below | 13% | 20% |
| 580 – 619 | 10% | 17% |
| 620 – 659 | 7% | 10% |
| 660 – 719 | 4% | 6% |
| 720 and above | 3% | 4% |
For example, suppose the additional vehicle costs $30,000, you finance it over five years, and your annual income is $60,000. The credit score-driven interest rates will translate into various monthly payments, affecting DTI.
| Interest Rate | Monthly Payment | DTI 2nd Car |
|---|---|---|
| 3% | $539 | 11% |
| 7% | $594 | 12% |
| 10% | $637 | 13% |
| 15% | $713 | 14% |
| 20% | $794 | 16% |
Down Payment
The size of your down payment is another meaningful second car loan underwriting requirement because the deposit amount reduces future default risk and is an input to the DTI calculation.
Buying an auto with no money down is possible. Still, lenders are more willing to approve applicants with sizable deposits because they are more likely to pay on time and according to terms when they have equity in the vehicle.
A large down payment also helps your DTI ratio because you borrow less, resulting in lower monthly payments. For example, suppose the additional vehicle costs $30,000, you finance it over five years at a 10% interest rate, and your annual income is $60,000.
| Down Payment | Monthly Payment | DTI 2nd Car |
|---|---|---|
| 0% | $637 | 13% |
| 10% | $573 | 12% |
| 15% | $542 | 11% |
| 20% | $509 | 10% |
Annual Income
Your annual earnings could be the most critical second auto loan underwriting requirement because they represent the debt-to-income ratio’s dominator, measuring your ability to double your periodic obligations.
DTI = Monthly Debt Service/Monthly Income
Dealerships verify income and employment for a reason. They may call your employer or ask for recent pay stubs because the finance company wants their money back. Approvals hinge on your ability to afford a second monthly payment.
For example, suppose the additional vehicle costs $30,000; you finance it over five years at a 10% interest rate and make a 20% down payment.
| Annual Income | Monthly Payment | DTI 2nd Car |
|---|---|---|
| $25,000 | $509 | 24% |
| $50,000 | $509 | 12% |
| $75,000 | $509 | 9% |
| $100,000 | $509 | 6% |
Two Cars With Bad Credit
It is possible to get a second car loan when you already have one under your name when you have bad credit, but the ideal strategy for approvals varies based on why your ratings are so poor. Consumers with scores below 620 fall into this category.
- Subprime: 580 – 619
- Deep Subprime: 579 or below
Cosigner
Getting a consigner is the universal strategy for getting a second car loan approval when you have bad credit (score below 620). A cosigner is a person who legally agrees to make the monthly payments if you cannot.
The minimum credit score needed to buy a car with a cosigner is much higher lenient because the lender considers the other person’s superior borrowing credentials (consumer report and annual income).
Also, many families have two auto payments even when one spouse has bad credit. If married, you could consider a joint application showing higher combined incomes and scores or splitting the loans into his and hers.
High Debt
Lenders might approve second car loans for consumers with bad credit when their scores are below 620 because the balances on revolving accounts and installment contracts are too high.
The amounts owed make up 30% of your credit score, and there is little one can do to retire these obligations overnight. However, you can restructure the terms to lower your DTI to make your application more appealing.
Debt consolidation loans lower monthly payments by extending the terms over a longer time horizon. You pay more interest using this strategy but give yourself more breathing room, making your application more appealing to finance companies.
Late Payments
Lenders might approve financing for two cars when the consumer has bad credit (below 620) because of delinquency, default, repossession, bankruptcy, and other derogatory marks on their consumer reports.
Payment history makes up 35% of credit scores, and there is little one can do to erase the past. However, you can control several elements of your DTI to make your application more appealing.
- Make a sizeable down payment to minimize the amount financed
- Choose an affordable new vehicle to lower the monthly payment
- Take on a side hustle to increase your annual income
