If you’re wondering how many cars you can have on finance at any given moment, your credit score is one of the first places to have a look.
There are several reasons why you may want, or even need to own more than one car. Whether it’s just to feed your ego or for busy household reasons, owning more than one car can either be simple or next to impossible.
Nothing will stop you from buying as many vehicles as you want when you have the money ready to pay upfront. Borrowing for an extra auto loan, on the other hand, is a completely different story.
How Many Cars Can I Finance at the Same Time?
There’s no legal limit on how many cars you can have on finance, as long as there’s enough income to back up however much debt you put yourself into.
If you’ve been a long-time borrower, then you’re familiar with the logic behind borrowing to some extent.
Lenders are eager to lend, sit back and take their interest rate profit. However, what they will not be very eager to do is place their money on investments that pose the risk of no return.
Car lenders look at several metrics when deciding whether to lend you money or not. And as expected, your credit score and debt-to-income ratio are major players in the outcome of this assessment.
If your effort rate is too high, meaning you already have several sources of debt you’re struggling to pay off, then it’s highly unlikely you’ll be approved to borrow more for another car.
Can I Finance 2 Cars with Bad Credit?
No legal restrictions prevent you from doing so. Even though you can finance more than one car with bad credit, the conditions you’ll sign for may not be the best.
You may want to work on improving your credit score along with your overall financial situation before applying for yet another loan. You’ll be saving yourself thousands of dollars down the road by not closing deals under poor conditions.
Ideally, your debt-to-income ratio shouldn’t be over 43% when applying for any kind of loan. Fixed monthly bills such as rent and other living expenses are also included in this ratio.
The higher your debt-to-income ratio is, the higher the chances of attracting predatory lending. Some lenders take advantage of individuals under bad financial conditions, these lenders will often impose unfair deal terms or charge predatory rates just because no one else is willing to vouch for a bad credit score holder.
It’s important to know your rights so you don’t fall victim to predatory lending. This government page should have enough information to clear any doubts you may have regarding your rights.
Second Car Loan Requirements
Now that you know there’s no limit to how many cars you can have on finance, it’s important to know which requirements to meet in order to be approved for a second auto loan.
These requirements will also be the same for any additional loan after the second. Here’s what you need:
Good Credit Report
A good credit report is more than making payments on time, it’s also a statement of a well-balanced debt-to-income ratio and a great indicator of financial literacy.
A good credit report is different than a clean credit report. But oftentimes, these different terms are mistakenly mixed up.
All it takes to have a clean credit report is to be a good payer, and this is easily achieved by never missing any payments.
A good credit report indicates good handling of several financial parameters, e.g., how much debt you’re into, how you’re paying it off, and good reasons to request credit. Meeting these requirements means you’re ready to take on future loans.
Good Credit score
A credit score is the end result of your credit history, it’s the outcome of your financial behavior throughout time, summarized in a 3-digit number.
Contrary to popular belief, this number is not calculated using just your past and current loans. It also relies on:
- Paying your bills on time
- Paying off your debt
- Credit card balance
- How often you´re applying for credit
Even though your income is not a considered factor when it comes to calculating your credit score, some lenders may find it decisive to approve your auto credit inquiry.
The car’s value is another weighting factor in a lender’s decision to approve your credit inquiry or not. The lower the value of the vehicle, the better your chances are.
Proof of Income
Lenders will need to know how consistent your income is.
There are several ways you can hand them proof of income, such as:
- Pay stubs: The most common way of presenting proof of income. If you’ve been employed for a long period of time, you can present your last pay stubs when applying for credit.
- Tax returns: Your previous year’s tax return statement.
- Unemployment documentation: Those receiving federal or state unemployment benefits can include these compensations as proof of income.
- Pension statement: If you’re retired, then your pension most likely accounts for the largest portion of your income. A 1099-R tax form gathers all the information a lender needs regarding your pension income.
- Workers’ compensation or disability statement: If you’re receiving any kind of workers’ compensation on a regular basis, you can include it as well. You just need to present proof of how much and how often you receive.
- Court ordered payments: Settlement agreements, alimony payments, child support, or others. If you’re receiving any periodic amount settled by the court, then you should have copies of the court orders detailing the payments, these serve as proof of income as well.
- Social security award letter: A statement of what you receive from social security.
Even though any of these is valid proof of income, most lenders will automatically disregard unemployed applicants or social security beneficiaries without additional sources of income for obvious reasons.
How to Increase the Chances of Financing Multiple Vehicles?
Turns out there are a few things you can do to increase the chances of landing an extra car credit, aside from having an excellent credit score or a massive monthly income.
- Save up for a large down payment: A big down payment means you’ll need to borrow less. Therefore, it will be easier to get approved, and better yet, you’ll pay much less in interest rates.
- Choose a car that you can afford: Consider a cheaper car if you’re on a tight budget. The goal is to not put your wallet under stress while still satisfying your transportation needs. If a cheaper car does the job, then there’s no need for additional financial stressors.
- Coapplying: Boost your chances by applying with your spouse or a parent. Keep in mind that not every lender accepts coapplying and both applicants typically share equal responsibility over the loan.
- Know your rights: Playing your rights in your favor can
Does Having 2 Car Loans Hurt My Credit Score?
It’s inevitable to hurt your credit score while sending out multiple car loan applications, but this is not necessarily bad.
Lenders know that multiple applications for auto loans within a short period of time only mean you’re searching for the best deal available.
Credit score systems are designed to take this into account, so there’s a 14-day window period where most credit scores will count every auto loan inquiry as a single hard inquiry.
Take advantage of this 2-week period to inquire as much as you need to. It’s important to know that inquiries will show up on your credit report for a period of 2 years. Even though all the inquiries will be counted as a single one during this period, each one will still be listed individually on your credit report.
As a result of shopping around, your credit score is expected to lower anywhere between 10 and 20 points. But you shouldn’t worry about it, the only way to get the best deal is to shop around. Your credit score will be fine and it should recover within a few months to a year.
The Bottom Line
As it turns out, you can finance as many cars as your income allows you to, even with bad credit.
There are alternatives you can try out if you really need that extra vehicle and are having trouble obtaining financing. But even though these exist and are available, they should be your very last resort. More often than not, you’ll be finding yourself slipping into a bad deal with these.
It’s important to get your financial affairs in order first to be able to access the best conditions when shopping around for an extra car.
If you’re considering a second-hand car but are not sure it’s a good decision, make sure to check our article on whether or not you should buy a car with over 100K miles.