There are many reasons why your household might need more than one car.
Maybe your partner needs their own car to commute to work in a different city, you need to drop off the kids at different extracurricular activities that all seem to start at the same time, or you live somewhere where the public transport options are patchy at best. No matter the reason, you might have two, three, or even more cars competing for space on your drive.
But can you own multiple cars on finance?
The short answer is yes. There’s no law against having two cars on finance at one time. In fact, there’s no legal limit to the number of loan agreements you can have, as long as you can afford them.
Unfortunately, this doesn’t mean that everyone can have more than one finance agreement at the same time. Eligibility criteria will apply, and your monthly income and credit history will also come into play. It’s also worth keeping in mind that some lenders will only allow you to have one car loan at a time.
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Whether you want to expand your personal car collection or add another vehicle to your household, you might be eligible to have two cars on finance.
You could even take out more than one type of finance if you like. You could buy your first car with a hire purchase (HP) loan, for example, and then add a second with a personal contract purchase (PCP) agreement.
One of the most important factors that’ll determine whether you can have multiple finance agreements is your ability to afford them. Lenders will need to know that adding an extra loan – and its fixed monthly repayment – to your outgoings won’t put too much pressure on your finances.
It’s not only that they may be concerned you’ll default on one - or both - of the loans, but if they approve an unaffordable agreement they won’t be acting as a responsible lender. That’s why your employment status and salary, as well as the amount of disposable income you have once all your essentials are covered, will all be considered.
When it comes to having multiple finance agreements, the limit does not exist. That’s right; there’s no maximum number of car loans that one borrower can have at any one time.
Of course, that doesn’t mean you’ll qualify for more than one.
Your ability to secure a second or third finance agreement will depend on the lender’s eligibility criteria and your individual circumstances.
Some lenders will only allow you to have more than one loan if you’re using them to buy different vehicles. You won’t be able to have two car finance agreements in your loan, but you could have one financed car and then buy a van or motorbike with a new loan.
Others might allow you to have more than one loan, but they’ll require the second one to be a joint agreement with a co-signer.
There are many different factors that lenders consider when deciding whether to issue you with a second car finance agreement, but the two most influential will likely be your income and your credit history.
Your income will need to be high enough to cover the cost of your existing loan repayment and your potential new one. The lender must be confident that having two payments won’t put your standard of living at risk or make it difficult for you to keep up with your other debts.
Your credit score lets lenders know how you might act as a borrower. It’s a three-digit number that’s used to represent how you’ve managed your money in the past. While it’s not impossible to get a second car loan with a bad credit score, having a good or excellent score as well as a strong payment history could improve your chances.
If you’re counting down the days until your first loan is paid off so you can take out a second one, you might be surprised to learn that some lenders will already consider it paid.
Don’t get too excited; you’ll still need to continue making repayments until the loan term officially ends but, if you only have four to six payments left, the lender might consider it paid off when determining whether to approve your new loan.
That means, your new loan will be treated as if it’s the only finance agreement you have with the lender.
No matter whether you’re applying for your first loan or your second, certain checks will need to take place.
While different lenders can have different requirements, you’ll likely need to undergo.
You’ll need to supply your full name and date of birth as well as a proof of ID like a UK passport or full driving licence.
Most lenders will ask you to share at least three years’ address history and prove your current address with documentation like a Council Tax statement or utility bill.
Part of the finance application form will ask you to share your employment status and annual salary. You’ll also need to show proof of this by sending recent payslips or bank statements if you’re self-employed.
Your affordability will be based on the amount of money you have left over from your monthly salary once all your essential costs are covered. These essentials include things like your rent or mortgage, utility bills, food, and debt repayments. The remaining cash is known as disposable income, which could potentially be put towards an additional repayment.
There are two types of credit check that will likely take place during your car finance application. The soft credit check will assess your initial eligibility and won’t affect your credit score. Once you agree to proceed with a finance option, a more in-depth hard credit check will take place.
While a car finance approval is never guaranteed, especially if you’re going for a second loan, there are certain factors that might improve your chances.
The more you can put down as a deposit, the less you’ll need to borrow to buy your second car.
Take steps to boost your credit such as registering on the electoral roll, keeping your overall credit use low, and ensuring there aren’t any mistakes on your credit report.
Your debt-to-income ratio compares the amount you have coming in each month to the amount you have to pay out to cover your debt payments. For example, if you have a salary after tax of £2,000 but pay out £500 to cover your debts, your debt-to-income ratio would be 25%. Aim to keep your ratio below 50% if possible.
Each time you make a formal credit application a hard credit search will take place. These searches are marked on your credit report and visible to other lenders. If you have a lot of hard searches in a short time, lenders might worry you’re relying too heavily on credit. Try to space out each application by at least six months if you can.
If you’re not in a rush, waiting until your first car loan is almost at an end can help. This will reduce your total amount of debt, and, in some cases, your loan might be considered already paid off (from a credit perspective) if there are only a few months left to pay.
When your second loan is officially signed and you’ve got the keys to your new wheels, your credit score will likely dip. This is because a hard search will have been carried out and your overall amount of debt will have increased.
Don’t panic; once you start making your repayments – in full and on time – your credit score should start to recover. In fact, your credit score might even improve over time if you continue to manage both loans well.
Keep in mind when applying for your second loan to leave a healthy gap between your first loan application and your new one. It’s best to avoid having too many hard searches on your credit file in a short time as this can negatively impact your score.