Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Americans love their cars, trucks and SUVs. Some love them so much they’ll own two vehicles at the same time–and often make payments on two auto loans at the same time as a result.
But having two auto loans can really add up. The average monthly payment for a new car is $554, according to Experian, and for a used one, it’s $391. So, multiple auto loans can mean a significant household outlay. But if owning two vehicles makes sense for you, it could well mean having two auto loans. Since that scenario does represent a potential household financial risk, it’s good to know if you’re considering owning two vehicles what steps you can take to make the process smoother and prevent any personal financial damage.
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So, Can You Have Two Car Loans at Once?
The short answer to the question, “Can I have two car loans at once?” is yes, you can. There are, however, many factors and caveats to consider. Perhaps a better question is whether you should hold two auto loans at the same time. That answer depends on your unique financial and household situation.
In certain circumstances, owning auto loans may make good financial and lifestyle sense. These circumstances can include the following.
- If You Have Two or More Breadwinners in the Home: If both spouses or life partners have jobs that require a commute and that commute can’t be shared in a single vehicle, owning two cars may well be a necessity, not a luxury.
- If You Sell or Trade Vehicles for a Living: There’s no shortage of collectors in the auto trade business who, for valid business reasons, may need to carry two or more auto loans simultaneously. While some individual auto sellers are committed to cash-only deals, some may prefer loan financing with a trusted lender.
- If You Own More Than One Home: While this certainly qualifies as a problem many people would like to have, owning two homes may necessitate the ownership of two cars and two car loans at the same time. This is especially true for homeowners with residencies in two states. In that situation, it may make sense, at least for convenience’s sake, to hold two auto loans.
- If You Have a Small Business That Requires Two or More Vehicles: Many small business owners–think painters, contractors, florists, bakers, and other “on the move” trades–need two or more vehicles. Consider a landscaping company owner whose business is growing and needs more trucks to get workers to an expanding list of client sites. Financing multiple trucks and trailers is well worth it if a business is generating more profit thanks to those purchases.
- If Your Teenager Needs a Set of Wheels to Get Around: Many parents know the reality of having to buy an extra car to get a college-bound son or daughter to campus (and give them a way to get around once they’re there).
Getting Approved for a Second Auto Loan While You Already Have a Car Loan
While it can be perfectly reasonable to hold multiple car loans, getting the second one may prove harder than getting the first. That’s primarily due to lender risk. Auto lenders may be more reluctant to extend a second auto loan to an individual. That said, getting approved isn’t insurmountable.
Don’t Take Out Two Auto Loans on One Vehicle
Having two auto loans on separate vehicles is generally OK. But lenders may not want to do business with you if you’re looking for multiple auto loans for a single car. Even if you find a lender who will green-light two auto loans for a single vehicle, that path leads to significantly higher debt, more potential damage to your credit score, and higher monthly auto payments.
Know the Qualifications for a Second Loan Approval
Auto lenders and banks will typically give extra scrutiny to current auto loan borrowers seeking a second car loan. The hurdles to a second loan may include the following.
- Your Credit History: Personal credit remains the primary barometer for auto lenders deciding whether or not to approve a second car loan. You’ll need to show you’re making on-time payments, you’re not overusing credit (i.e., keeping your debt to income ratios low), and you have a robust FICO score. Any score over 700 puts you in prime position for a second auto loan.
- Your Annual Income: Since you already have an active auto loan that hasn’t been repaid, lenders will focus particularly on your income. Specifically, the lender usually wants to see if your income can easily cover a second auto loan. Since auto purchases also lead to additional expenses, like maintenance, repair, gasoline, insurance, and state registration fees, your annual income should be able to handle not only the car loan, but the expenses that go with auto ownership.
- Debt to Income Ratio: Overall household debt compared with income, meaning the debts you’ve accumulated balanced against your personal financial assets, is a big deal to auto lenders reviewing a second auto loan application. Ideally, your debt-to-income ratio would be about 35% debt to 65% assets. More debt could lead to an auto loan rejection.
- The Second Vehicle’s Value: Auto lenders will also study your second car’s estimated value. In general, the less expensive the vehicle is, the better your chances of getting a second auto loan approved. It’s simple math weighed against risk. The less cash you borrow, the better your odds of repaying the loan.
- Your Down Payment: Additionally, it’s helpful to bring a hefty down payment. Anything more than 20% of the vehicle’s estimated value is likely to help your cause with a lender.
Consider Getting a Cosigner
If getting a second car loan stretches your income (or if a lender thinks it could) it may help to get a cosigner. A cosigner should be someone you trust and who trusts you who has a strong credit history and good income. Just as when you’re getting a cosigner for a refinance, this person must also be willing to share the responsibility for the loan with you. If they cosign, that means that if you can’t make a payment, they will be responsible. A cosigner can improve your chances of getting a loan because they may diminish the risk for the lender.
Taking on a Personal Loan vs. a Traditional Auto Loan
Since the stakes are higher with a second auto loan, overextended borrowers may need to expand their vehicle financing options. One way to do that is to weigh a traditional auto loan against a personal loan. Sometimes it can be easier to grab a personal loan, but there are risk factors involved with both personal loans and regular auto loans. Here’s a closer look at some of the factors involved.
- Interest Rates: Personal loans usually have higher interest rates than traditional car loans, with the rate ceiling on a personal loan at approximately 36% and the ceiling on a regular car loan at about 20%
- Loan Terms: Loan repayment timelines are about the same with both personal loans and traditional auto loans. Personal loans usually need to be paid back within two to seven years while a regular car loan repayment period stands at between three to seven years.
- Down Payments: Down payments are not required for a personal loan but they usually are required with traditional car loans.
- Loan Fees: Personal loan fees can be as high as 8% in some instances, whereas loan fees for regular car loans usually range between 1% and 2%.
- Collateral: Personal loans for autos typically require no collateral. That’s not the case with traditional auto loans, where the vehicle itself is usually the collateral.
So, which is right for you as a second car loan: an auto loan or a personal loan? The answer depends. If you can get an auto loan and you can afford a down payment, you will likely pay less in interest and fees. But if you are having trouble finding an auto loan or don’t have a down payment at the ready, a personal loan could be what it takes to let you get that second car.
The Takeaway
Balancing two auto loans simultaneously may seem challenging, but it may be doable if you have a decent income and a history of on-time payments. Just be sure you really need to have two quality vehicles at the same time.
Once you’ve decided a second car loan is a worthwhile and viable choice, treat your second car loan like any other auto loan. Understand the risk, study your options, bring some cash to the table and choose a loan that meets your unique household financial needs.
Learn more:
This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
Lantern by SoFi:
This Lantern website is owned by SoFi Lending Corp., a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. (www.nmlsconsumeraccess.org). All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. There is no guarantee you will be approved or qualify for the advertised rates, fees, or terms presented. The actual terms you may receive depends on the things like benefits requested, your credit score, usage, history and other factors.
*Check your rate: To check the rates and terms you qualify for, Lantern conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit. All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown on this website are from lenders and are estimates based upon the limited information you provided and are for information purposes only. Estimated APR includes all applicable fees as required under the Truth in Lending Act. The actual loan terms you receive, including APR, will depend on the lender you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the lenders and not by SoFi Lending Corp. or Lantern. Please review each lender’s Terms and Conditions for additional details.
Personal Loan: SoFi Lending Corp. (“SoFi”) operates this Personal Loan product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lenders/partners receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
Student Loan Refinance: SoFi Lending Corp. (“SoFi”) operates this Student Loan Refinance product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lender’s receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
Student loan refinance loans offered through Lantern are private loans and do not have the debt forgiveness or repayment options that the federal loan program offers, or that may become available, including Income Based Repayment or Income Contingent Repayment or Pay as you Earn (PAYE).
Notice: Recent legislative changes have suspended all federal student loan payments and waived interest charges on federally held loans until 01/31/22. Please carefully consider these changes before refinancing federally held loans, as in doing so you will no longer qualify for these changes or other future benefits applicable to federally held loans.
Auto Loan Refinance: Automobile refinancing loan information presented on this Lantern website is from Caribou. Auto loan refinance information presented on this Lantern site is indicative and subject to you fulfilling the lender’s requirements, including: you must meet the lender’s credit standards, the loan amount must be at least $10,000, and the vehicle is no more than 10 years old with odometer reading of no more than 125,000 miles. Loan rates and terms as presented on this Lantern site are subject to change when you reach the lender and may depend on your creditworthiness. Additional terms and conditions may apply and all terms may vary by your state of residence.
Secured Lending Disclosure: Terms, conditions, state restrictions, and minimum loan amounts apply. Before you apply for a secured loan, we encourage you to carefully consider whether this loan type is the right choice for you. If you can’t make your payments on a secured personal loan, you could end up losing the assets you provided for collateral. Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on the ability to meet underwriting requirements (including, but not limited to, a responsible credit history, sufficient income after monthly expenses, and availability of collateral) that will vary by lender.
Life Insurance: Information about insurance is provided on Lantern by SoFi Life Insurance Agency, LLC. Click here to view our licenses.
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How to refinance an auto loan
In times of lower interest rates, you may start to wonder about whether you should refinance your auto loan. And why not? According to 2020 data from RateGenius, money saved with a new auto loan is at an all-time high. Auto loan refinancing deals saved borrowers $989.72, on average, in 2020.
With that much cash up for grabs, it’s no wonder that auto refinancing loans are in big demand. Key strategies for auto owners who want a good refinance loan experience include being prepared and making sure to understand all the details. Read on for information that may help.
phototechno/ istockphoto
When you refinance an auto loan, you’re essentially securing a new auto loan. You use the new loan to pay down the balance of the original car loan. That all takes time, effort and money (for loan applications and servicing fees). That’s why you should be sure you have a good reason before you go to the trouble of taking out an auto refinancing loan.
So when should you refinance your auto loan? The fact is that vehicle owners refinance their auto loans for a variety of reasons that can all be worthwhile, depending on the situation. Most often, car owners refinance their loans to achieve the following personal financial goals, such as:
- To Lower Monthly Auto Loan Payments: Getting a new auto loan at a reduced interest rate can cut monthly payments down, leaving more cash in the till for other household expenses.
- To Get a Lower Interest Rate: Depending on the loan, a car owner may also be able to save money over the lifetime of the loan by getting a reduced interest rate. Take a vehicle for which the original loan was $25,000 and the refinance loan is $21,000. For a 60-month loan where the interest rate is cut from 7% to 5%, for example, the refinancing could save approximately $6,000 over the life of the loan.
- To Shorten the Loan Term: Car owners who are cash flush may shorten their loan terms to pay off the car faster, thus saving significant cash with lower interest rate payments.
- To Extend the Loan Term: Car owners who need some financial breathing room after a job loss, an injury or illness, or a divorce or other issue can extend the term of the loan to reduce monthly (but not overall) loan costs.
- To Get Some Extra Cash: If you have enough equity in your car, you might be able to take out a refinance loan that’s more than what you owe. That way you could get cash in hand, too. This is called a cash out car refinance. But realize that if you opt for this kind of refinancing, you will still have to pay back both the car loan and the extra money.
Also recommended: If you’re new to the world of auto finance, learning some auto loan terminology may help.
istockphoto/demaerre
Where does a borrower start with the auto loan refinancing process? Ideally, with a good grip on what a refinancing deal has to offer. Auto loan consumers are best off when they fully understand the entire refinancing. It can help to make sure you have answers to these questions:
- Do you meet the lender’s financial requirements? While each bank or lender has its own rules and regulations on auto refinancing, many banks have similar lending limits. For example, your auto usually must be less than 10 years old and have less than 125,000 miles on it. While the exact figures may vary from lender to lender, know possible vehicle restrictions heading into any refinancing deal.
- Are there any prepayment penalties? It’s usually a good idea to pay off an auto loan as soon as possible. Doing so clears the debt and puts more money in your pocket. However, some financial institutions may stick you with a prepayment penalty if you pay off the loan early. Be sure to examine your existing loan contract for any prepayment penalties and factor them into your costs.
- Do you know the total cost? Before green-lighting an auto loan refinancing deal, you need to know the full cost of refinancing the car. Make sure you know how much you’ll save per month and, even more importantly, over the life of the loan. When you refinance, you may be saving money on a monthly basis but adding more dollars to the overall cost of the vehicle. You’ll want to be sure you’re factoring any fees or penalties, too. A good auto loan refi calculator can be highly useful here.
- What’s your credit score? Most lenders will expect a minimum credit score from potential borrowers. Typically, a FICO credit score of 700 or more will get you the lowest loan rates on an auto refinancing loan. That said, a FICO score of 660 should ensure that you qualify for a standard auto loan refinancing deal.
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With that prep work complete, now it’s time to figure out the best path to a good auto refinance loan. Get the job done right with these action steps.
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Start the auto loan refinancing process with some data-gathering. To file a loan application, you’ll typically need these documents:
- Your original auto loan: Lending institutions will require the original loan paperwork to process a new loan. The original loan paperwork should include the loan amount, the monthly payment, the interest rate, the payoff number and the up-to-date loan balance
- Your vehicle information: Auto loan providers will also ask for your current vehicle information (think a Carfax for your own vehicle.) This document should include the vehicle’s make, model, year, mileage and vehicle identification number.
- Your auto insurance paperwork: Make sure you have your car insurance records, including type of insurance and the amount of the insurance included in the policy. Auto lenders won’t make a loan to an uninsured or significantly underinsured vehicle owner. That’s because the lender has a stake in the vehicle as well. If the car is damaged or totaled, your lender will want to know it was properly insured.
- Your employment records: Your auto loan refinancing lender may also ask for proof of income and employment, to ensure you have the means to repay the loan.
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Kick off your auto loan refinancing deal by listing what you want from the loan, such as a lower interest rate, no or low fees, a streamlined application process, and solid customer service. Having a candid conversation with your current financial institution is also a good step to take since it may give you an idea of what kinds of loans you could qualify for. And as you look for refinancing loans, remember that you may also want to explore online auto loan refinancing options since they tend to have fewer fees and competitive rates.
gpointstudio / istockphoto
When you’ve found the loan you want, follow the instructions to apply. A typical auto refinancing loan application likely includes the following:
- Name
- Date of birth
- Email address and phone number
- Address
- Social Security number
- Driver’s license number
- Work status
- Your bank’s name, address, routing number and checking account number (so the lender can deposit your loan amount, assuming it is not your bank)
- Your vehicle information
- Your auto insurance information
Once you complete the application, review it thoroughly to confirm that the information is accurate and up to date. Any discrepancies or missing information may lead to a loan rejection. And know that the lender will likely perform a credit check.
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Once your application is approved, your new auto loan provider will pay off your old auto loan or give you the funds to do so, and become your auto loan manager. Future payments will go to the lender who handles your refinanced loan. It is, however, a good idea to confirm with your original lender that the auto loan was paid off and you don’t owe any more payments. After that, be sure you pay the new loan on time and start enjoying the savings from your refinanced auto loan.
DepositPhotos.com
Whether you simply want to get an auto loan with more favorable terms or you’re looking to adjust your car loan repayment period, refinancing your auto loan allows you to take advantage of lower rates, put more cash in your pocket, and get a loan that meets your unique personal financial needs. Handled correctly, refinanced auto loans can be a big win-win for vehicle owners, who can gain an auto loan with better terms and potentially save money in the process.
Learn more:
This article originally appeared on LanternCredit.comand was syndicated by MediaFeed.org.
Lantern by SoFi:
This Lantern website is owned by SoFi Lending Corp., a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. (www.nmlsconsumeraccess.org)
All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. There is no guarantee you will be approved or qualify for the advertised rates, fees, or terms presented. The actual terms you may receive depends on the things like benefits requested, your credit score, usage, history and other factors.
*Check your rate: To check the rates and terms you qualify for, Lantern conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown on this website are from lenders and are estimates based upon the limited information you provided and are for information purposes only. Estimated APR includes all applicable fees as required under the Truth in Lending Act. The actual loan terms you receive, including APR, will depend on the lender you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the lenders and not by SoFi Lending Corp. or Lantern. Please review each lender’s Terms and Conditions for additional details.
Personal Loan:
SoFi Lending Corp. (“SoFi”) operates this Personal Loan product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lenders/partners receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website.
More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
Student Loan Refinance:
SoFi Lending Corp. (“SoFi”) operates this Student Loan Refinance product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lender’s receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website.
More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
Student loan refinance loans offered through Lantern are private loans and do not have the debt forgiveness or repayment options that the federal loan program offers, or that may become available, including Income Based Repayment or Income Contingent Repayment or Pay as you Earn (PAYE).
Notice: Recent legislative changes have suspended all federal student loan payments and waived interest charges on federally held loans until 09/30/21. Please carefully consider these changes before refinancing federally held loans, as in doing so you will no longer qualify for these changes or other future benefits applicable to federally held loans.
Auto Loan Refinance:
Automobile refinancing loan information presented on this Lantern website is from MotoRefi. Auto loan refinance information presented on this Lantern site is indicative and subject to you fulfilling the lender’s requirements, including: you must meet the lender’s credit standards, the loan amount must be at least $10,000, and the vehicle is no more than 10 years old with odometer reading of no more than 125,000 miles. Loan rates and terms as presented on this Lantern site are subject to change when you reach the lender and may depend on your creditworthiness. Additional terms and conditions may apply and all terms may vary by your state of residence.
Secured Lending Disclosure:
Terms, conditions, state restrictions, and minimum loan amounts apply. Before you apply for a secured loan, we encourage you to carefully consider whether this loan type is the right choice for you. If you can’t make your payments on a secured personal loan, you could end up losing the assets you provided for collateral. Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on the ability to meet underwriting requirements (including, but not limited to, a responsible credit history, sufficient income after monthly expenses, and availability of collateral) that will vary by lender.
Life Insurance:
Information about insurance is provided on Lantern by SoFi Life Insurance Agency, LLC.
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Featured Image Credit: phototechno/ istockphoto.
