If you already have a car that is financed, you may be wondering if it’s possible to get a second car loan. You may find yourself in the position of needing a second car, but today’s car prices make it hard to afford it without financing. The good news is that you can get a second car loan, but you may face more scrutiny which makes preparing your finances ahead of time that much more important.
Here’s how you can prepare for a second car loan.
How can I prepare for getting a second car loan?
Applying for a second car loan will follow the same process as when you applied for your first car loan. You will however face more scrutiny from lenders because you are accruing more debt.
Lenders will consider the same factors that they considered with your original car loan. They will look at your credit history, your current debt, payment history, and income to determine how much of a risk you are when it comes to financing. If you have a good income, good credit history, and don’t have a lot of debt you may find that getting a second car loan is no issue at all.
If you are having trouble making your monthly car payments and in general are not in a great financial position, you may have a hard time securing a loan. The best way to prepare for a second car loan is to ensure that your finances are on track and that you can afford the car you wish to buy.
How do I know if I can afford a second car?
When you buy a second car, not only will you need to afford a second car payment every month, but you will have to afford the additional costs that come with buying a car. That means:
- Increased insurance premiums
- Maintenance costs
- Parking fees
- Registration fees
It’s important to think about all of this when you are considering which car to purchase. Selecting a car that you can afford comfortably will give you a better chance of keeping current with your payments.
The general rule of thumb is that your total transportation costs should not exceed 20% of your income. This means that your car payments, insurance, maintenance, gas, parking, and tolls should all be 20% or less of your income–and that’s for both cars. While you may not have a ton of control over the price of gas, parking, tolls, and maintenance, you do have some control over the car payments you will be making. The key is to select a car that you can afford. Here are some questions to ask yourself when deciding which car you should purchase as a second car:
- Can I afford it? The first question you should ask yourself is if this actually fits into your budget. If you can afford it, then great! But if not, consider your needs and see if a used car would be a better option for you.
- What will this car be used for? In other words, why do you need a second car? If you need a car simply for getting from point A to point B, a small economical car with few addons might suffice. This will help you secure a lower purchase price. If you want a nicer second car that will be your fun weekend car, be sure to look around at different brands and try to find a car that will fit into your budget while still giving you the comfort you are craving.
- Can I wait and get my finances in great shape? If you can afford to wait a few months to make sure your finances are in order it can save you a lot of money. If the situation is urgent you may not have the luxury to shop around and get your credit boosted.
- Should I refinance my first loan? Before getting out a second loan you should take another look at your first loan. If your finances have improved since your initial loan you may be able to refinance and secure a lower interest rate. This can ease up a lot of money every month and allow you to more comfortably make a second loan payment every month.
How can I improve my chances for getting a second car loan?
Lenders tend to perceive a second car loan as risky so your odds for approval are lower. But there are several steps you can take to help get approved and get the best car loan APR possible.
Check your credit report.
Getting a copy of your credit report and reviewing it for errors can help you enormously. When you get your report you want to take a look at all payments made, all debt balances, and all open accounts. It’s good to review this every few months in general, but it’s especially important when you are interested in opening a new account. If you notice anything that is incorrect be sure to report it immediately. Fixing errors can bump up your credit score significantly. Reviewing your report also gives you a chance to check in on how you are doing financially. Are you keeping up with payments? Do you have too much debt? A self assessment will help you keep track of your finances much more efficiently.
Save for a down payment.
A sizable down payment will not only help reduce the balance of your loan (and therefore reduce your payments) but it will also help you get a lower interest rate. A down payment instills confidence in the lender that you are responsible and have the means to make monthly payments.
Pay down revolving debt.
Revolving debt is debt that you borrow against a line of credit, like a credit card. Paying down these accounts will significantly improve your debt to income ratio and improve your chances of getting approved for a second car loan.
Get a cosigner.
If you really need the second car but you are having trouble getting approved, you may want to consider using a cosigner. A cosigner with good credit can help you get approved and help you secure a better car loan interest rate. If you default on your payments your cosigner will be responsible for making them, making you a less risky candidate. But using a cosigner can make for a complicated personal relationship. After all, if you default on your loan you are putting them in a tight financial spot. It’s important to only do this if you are certain that you can afford the payments.
Estimate your car insurance payments.
While maintenance costs can be tricky to predict, you are able to estimate your car insurance premiums before you purchase a second car. It’s important to take this into consideration because it can easily add a substantial amount onto the cost of your second car. To get an estimate you will need to know which car you are interested in (or at least have your top two or top three picked out). You will also need to determine the level of coverage you want. The requirements vary state to state so check your state’s department of motor vehicle to see what type of coverage you need. You can then reach out to your current insurance provider and get an estimate. Be sure to get quotes from a few other companies as well. You may find better deals with other companies especially if you are bundling your policies. Taking the additional cost of insurance into consideration will help you make the right choice when buying a second car.
Shop around for the best car deal.
There are a lot of options when it comes to buying a new car. While you used to be limited to the dealerships near you, there are now a lot more options available. When you find the car that is right for you, check the prices at several dealerships. Online dealerships like CarsDirect and Carvana may be more affordable options for you. Shopping around for the best deal can save you thousands.
Get pre approved.
Pre approval makes buying a new car much easier. You will know before you even set foot in a dealership what cars you can afford and how much your payments will be. It will also help you avoid the dealer financing pitch, which is usually always more expensive. The dealer will have to beat your pre approval rate, which may be hard for them to do. In general pre approval makes you seem like a prepared, no-nonsense buyer and will help you tremendously. It’s always good to bring a loved one along with you to the dealership to help keep you focused and help you resist the added pressures that are present at dealerships.
That’s how you can get a second car loan.
Getting a second car loan may be slightly more difficult, but preparing your finances will give you a better chance of being approved.
If you are interested in refinancing your car loan, contact Auto Approve today! You can get a free quote in minutes and it could save you thousands. So don’t wait!
