Buying a car from a private seller is one of the best ways to go. But what if you need financing? Private party auto loans exist. Therefore, people and organizations can offer you financial assistance.
The Consumer Financial Protection Bureau reported in September 2021 in a study titled Data Point: Subprime Auto Loan Outcomes by Lender Type that Americans owe auto lenders more than a trillion dollars. It is especially worrying when people with poor credit scores have to deal with financial markets.
“Consumers with subprime credit scores are especially likely to need loans to purchase vehicles,” the report says. “But they are also the most likely to default on their loans, with potentially serious consequences.”
What options are available to people? Banks, credit unions, and online lenders offer private party auto loans. Even though they come with higher interest rates, private party car loans still present reasonable conditions because there are no dealer fees or hidden costs, and the probability of getting caught in add-on packages is low.
Furthermore, of course, personal vehicles are typically cheaper than those sold by dealerships.
So, how to finance a car from a private seller? Keep reading as we will walk you through everything you should know about how to identify the best private party auto loan.
What is a private party auto loan?
In the first place, a private car is a vehicle owned by an individual rather than a dealership, a company, or a marketplace. In that framework, a private party auto loan is the financing you will need when purchasing a personal car if you don’t want to pay it in cash.
With a private party car loan, you get the money from a financing institution. But you should choose the car before asking for the money. If approved, the lender will pay the seller for your vehicle, and you will pay back the lender over the car loan term, including interests and any other fee.
As you may know, private sellers do not offer financing options. They are not in the industry of selling cars and getting money from interests, fees, etc. But an individual usually provides a cheaper car as they should not face fees, corporate taxes, revenues, labor payments, and other expenses.
In this line, if you combine private sellers and auto loans, you can enjoy the best parts of the two worlds and enjoy a private party car loan financing that will save you money.
Now, I just have a recommendation. Be aware of those private sellers who offer financing options. Make sure that whatever you sign is regulated, and that you understand all the perks, terms and conditions.
How do private party auto loans work?
As mentioned above, private party car loans are similar to other financing options. They are secured loans and take the car as collateral. So, if you do not comply with the monthly payments, the lender can repossess the car.
The terms of the loan are also similar as private party auto loans also have APR, or annual percentage rate, fixed loan terms, and possible down payment and discounts that affect your regular installments.
Among the differences between dealerships and private parties loans are the costs associated with the loan and the actual purchasing of the car. Keep in mind that you may be charged with a higher interest rate, and some lenders have restrictions for vehicle age, mileage, or type of car
Last but not least, lenders usually offer repayment terms between 12 and 84 months. Remember that the longer the term, the less you will pay every month, but you will also end up paying more interest in the long run.
What are the factors that will affect your private party auto loans
Car price: The vehicle’s value will determine how much money you will borrow and how much risk in terms of money the lender will take.
Amount of money you are borrowing: How much money are you borrowing, and what is the ratio of your loan regarding the car’s price? Sometimes, lenders assign higher rates for smaller loans.
Your credit score: As you may think, higher credit scores come with lower interest rates and vice versa. Do you have a poor credit score? Learn how to boost your credit score before buying a car.
Loan term: Evaluate how much money you can afford to pay every month. Think that long-term loans offer higher interest rates, you will pay lower monthly payments, but you will end up paying more in interest. The lower term in the loan, the smaller amount of money you will end up paying.
Vehicle’s age: Old cars usually have higher interest rates, while lenders assign lower interest rates to new models. Why? They believe the risk is higher with old cars as in case the repossession the car value will be minimal.
Mileage: Lenders link mileage with the age of the car and its usage. Therefore, vehicles with high mileage will get higher interest rates.
Discounts: Check if your lender offers you discounts in the APRs and monthly payments like percentage points off if you signup for autopay or a regular customer for that institution.
How to get a private party auto loan – How to apply
Step by step, let’s see how loans for private party cars work. Please remember that this is only a guide; the process can vary depending on lenders and online marketplaces.
Determine your budget
Understanding your finances is the first step. Consider how much money you have and how much you are willing to invest in your car. Make sure you have the funds to make the payments every month. These are your magic numbers, which will enable you to budget appropriately.
Check your credit score
As mentioned above, your credit score determines the interest rate you get, so be sure you have a good score. But what if you have bad credit but still need a car? Check how to get a car loan with bad credit here in Influential times.
Choose your car
Make sure you are clear about what you need before applying for a car loan. Therefore, it’s best to know what type of vehicle you’d like to buy before applying for a loan. Make sure you know what the brand and model is, as well as its age, mileage, and whether or not it has been in an accident.
Shop around and compare rates
You should never accept the first private party car loan you see. Shop around and compare different lenders and options. If necessary, visit online marketplaces, banks, and credit unions. If you want to obtain the best private party auto loan, you should do your homework, which means that you should compare terms and conditions. Among the factors to consider are term lengths, fees, costs, and the payoff period.
Find out if you are eligible.
Depending on the lender, both the car and the borrower have different requirements. The requirements might include a minimum credit score, down payments, mileage and vehicle age limits. Find out if your private car is eligible for a vehicle loan.
Apply for your loan
As soon as you have found the car you want to buy and have confirmed that the owner wants to sell it, you should prepare the paperwork the lender will require. These documents usually include:
- Name, address, social security number and date of birth
- Proof of income such as employment, taxes, etc.
- Copy of vehicle title
- Copy of the car registration
- A bill of sale where all the transaction data is noted. It should include price, model and VIN
- Any obligation or liability that the owner still has over the car you are purchasing
Close your loan
You have been approved. Congratulations! You will now receive all the details about the transaction. Before signing any documents, please make sure to read the terms and conditions carefully. Additionally, the lender will issue a check payable to the car owner for the amount you are paying for the car.
Transfer of vehicle ownership
As soon as you have closed the purchase, you need to transfer the title and registration of the vehicle. It should be registered to your name. Also, remember to add insurance to your vehicle or inform your insurance company if you already have one.
Schedule your payments
Last but not least, remember to set the date for your monthly payments with your lender. You can also schedule payments through your online banking.
Where do I find a private party auto loan?
Most banks and credit unions offer loans for private party autos and there are also online marketplaces where you can shop directly to different lenders or brokers who can assist you.
However, as loan products vary from one financial institution to another, it is essential for you to ask lenders if they offer loans for the purchase of private party cars.
Also, remember that every lender has different requirements. So, it means that it doesn’t matter if one lender rejects you, you can ask another institution for a loan.
In summary, check large banks, credit unions, online lenders and also community banks. At a local level, you can find lending clubs and even small lenders that are focused on that practice.
Tips when you are buying a car from a private seller
- The best private party auto loan will save you money in the long run and, at the same time, will provide you with the opportunity to buy a car. Nonetheless, private party car loans are not a magic bullet that will solve all your problems. Here are a few tips you should consider to ensure you are on the right track.
- Use car loan calculators and estimators to understand your dealings with interest rates, monthly payments, and total amounts paid. In this way, you will know exactly what to expect from your budget and your car loan.
- Before you ask for a loan, come to an agreement with the seller about the price. In that way, you will have a solid price, and the seller will not be tempted to increase the price if he knows you got money.
- Ask all the questions you have, no matter how silly they may sound. It is your right and responsibility to understand what you sign.
- Be sure you know the seller, or at least you have done your homework and checked his or her profile before meeting or closing deals with him or her. Never bring cash or meet him or her at night in a place with no people.
- Do your own research. Do not take any information for granted.
- Shop around, compare lenders and choose your options wisely.
So, are you ready to find the best private party auto loans?
Okay, so you got the opportunity from a relative who knows someone selling a car. Excellent! So what happens next? Let’s find the best private party auto loan for you. Easy peasy! Well, not really.
All car loans are different, so do loans for private party autos. Do your research and compare prices, interest rates, and terms. If you do it right, you will save a lot of money over a typical loan in a dealership.
Are you ready? Your whip is waiting for you!