Studies show that most American families own two cars. But taking on multiple auto loans is a big decision. How do you know if you’re ready? Use these tips as guides to help you decide if you’re prepared for a second (or third) auto loan.
1. Your Credit
Your credit score and debt to income ratio (DTI) will be the main sources that lenders will review to determine if you’re trustworthy to lend money to. According to FICO, the largest factor in determining your score is your payment history. The timeliness with which you pay your bills makes up over a third of your overall score. If you’re paying your current auto loans (and any other loans) on time, you’re on your way to maintaining a good credit score.
2. Your Budget
Even more important than securing the loan from a lender is can you afford it? Take the time to look at your expenses and foresee how adding another auto loan monthly payment will impact your financial journey. Look over how you’re currently spending money and categorize your transactions into four spending buckets:
How much of your money is going into each bucket? Will another auto loan payment take away from your goals for those four areas? Or, do you have room to take on a new auto loan? Remember, your car payment isn’t the only piece of the puzzle. Leave room for sales tax, gas, maintenance, insurance, and any emergencies that may arise.
Auto Loan Alternatives
If you think you need two cars, but you’re not ready to jump in just yet, don’t feel trapped. There are plenty of alternatives to consider. Public transportation, biking and carpooling can often carry you through until you’re ready to take on another auto loan. Many professionals are exploring options with remote working to save on costs (gas, parking fees and mileage all add up).
Consider all of your options before making your decision to apply for another auto loan. Check out our car loan calculator to get a better feel for what payment will work best for you.
Until next time,