Buying a car is expensive, and complications are always sure to crop up when looking to get financed for a second car loan, while payments for a first one are still pending. Contrary to perception, it is very much possible to get funded for a second car loan. However, it is not as easy as getting approved for a first car loan.
By approving a second loan, lenders essentially take on additional risk, which most of them are cautious about taking. Likewise, there are a number of things that lenders take into consideration while processing a second car loan.
Starters must have a solid and stable credit record to get approval for a second car Loan. A lender would need to have assurances that one’s financial status can handle a second loan while financing an ongoing car loan. Conversely, one’s credit record would have to be above average to get approval for a second loan, let alone a favorable deal.
Payment to Income and Debt Income ratios
Lenders also pay close watch to Payment to Income and Debt Income ratios when approving a second car loan. The comparison and analysis seek to ensure that one’s financial situation or health can handle a new financial obligation in addition to ongoing obligations.
First Car Loan Impact
If a borrower has a car loan that is nearly paid off, say it has between 4 to 6 months remaining, then approval for a second loan would be much easier. Approval would be more than guaranteed as most lenders don’t factor car loans with less than six months of payments when considering approval for a second loan.
Credit scores would also determine a great deal whether one gets approval for a second car loan. Higher credit scores are synonymous with people with a solid track record when it comes to paying debts. Lenders tend to approve car loans for people with higher credit scores as they are deemed to be low-risk clients compared to people with low credit scores.