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Private party auto loan: What it is and how to find one Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by providing you with interactive financial calculators and tools, publishing original and objective content, by enabling you to conduct research and compare data at no cost - so you can make financial decisions with confidence. Bankrate has agreements with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this site are from companies that compensate us. This compensation could affect how and where products are displayed on this site, including, for example, the sequence in which they appear within the listing categories in the event that they are not permitted by law. Our loans, mortgages,, and other home lending products. This compensation, however, does affect the content we publish or the reviews that appear on this website. We do not contain the vast array of companies or financial offerings that could be open to you.
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5 min read published on October 13, 2022.
Authored by Rebecca Betterton Written by Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers in navigating the ways and pitfalls of taking out loans to purchase an automobile.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances with precise, well-researched and reliable data that breaks complex subjects into digestible pieces.
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Private party loans can be easier to get than traditional loans. However, lenders might charge higher because buying from an individual is considered more risky than purchasing from a dealer. In spite of the higher costs for private party auto loans, there are ways to find lenders that offer auto loans that you can afford. What is a private auto loan? A private party auto loan lets you finance a car that is sold through the proprietor, and not a dealer. The purchase of a car from an individual usually will result in a lower cost for the vehicle itself. But since they come with higher risk to the lender, they're not so widely accessible as other auto loans and, often they're accompanied by greater interest. "Because due to the nature of private-party sales, rates tend to be higher than you would get if you visited the dealership," says Strati Papageorge, senior vice president of product management for autos at PNC Bank. "But the benefit for the customer is usually lower prices for vehicles and they are able to have an affordable price." There are methods to mitigate the drawbacks associated with private party auto loans and to find the lender that will offer an auto loan that you are able to be able to afford. How a private party auto loan is a good idea Your budget as well as the local availability of used cars are one of the main factors to think about. Luckily, the actual financing process is very similar to shopping for an used or new car at a dealer. Create a budget To create your budget, start with your credit history and score to determine the loan amount you could be eligible for. When you are aware of the condition of your credit score, it will be simpler to determine what you'll be able to pay for out of pocket and also determine the amount you will need to finance. Compare lenders Once you know the type of vehicle you plan to purchase, search for lenders that provide private party auto loans. Compare rates of interest, loan terms, monthly payment, penalties and fees. Since private party loans tend to be more costly so, you should apply for preapproval prior to you start looking. So, you'll be aware of what you are able to pay and how much you can expect to pay every month. Choose a vehicle Private sales are typically limited to inventory in the local area, so you should have a few options in mind when searching for a second-hand vehicle. Check the cost-to-own estimates from reliable sources such as Edmunds as well as Kelley Blue Book. They can guide you towards a reliable vehicle. You may be able to utilize a national site to find the right vehicle, but travelling for a test drive and purchase -- as well as dealing with transfer of title outside of the state can be more trouble than the car's value. When you're ready to buy from a private seller check out your state's laws regarding title transfers. They should be on the state's Department of Motor Vehicles' website. Complete the transaction after you have found a vehicle, and sign the loan agreement the lender will send the check directly to you or the seller. If either you or the seller decide to use direct deposit, make sure the seller knows that transferring funds can take a few days. Your lender will give you payment due dates and an estimate of how much of the money goes to principal and interest each month. If you are able, go for autopay. It is a great method to ensure that you make payments on time, without having to send an unintentional check or logging in to an online portal. Be sure to verify that your payment has been processed every month. Where can you find private party auto loans The majority of large financial institutions -- like community banks as well as local credit unions and online lenders offer private party auto loans.The vehicle will need to be in compliance with certain criteria. For example, lenders generally will require the car to be less than 10 years old with fewer than 100,000 miles. Other lenders may have an upper limit on the loan amount. If the car you'd like is valued at $6,000 and the lender isn't able to provide loans that small, you will have look for a different lender. Take note of the lender's requirements before submitting a request for a private-party auto loan to avoid taking a hit to your credit rating for a loan you're not eligible for. How to apply for a private party auto loan Once you have found the vehicle you want to purchase from a private seller, ensure you provide the lender with basic information about yourself that include: your full name, birthdate, address, Social Security number, and contact details. Employment and income information. Current debt obligations, such as a mortgage. You should also have certain documents and details about the car you are planning to purchase, such as: Make and model, model year and mileage. The VIN, or vehicle identification number. or VIN. The bill of sale which outlines the purchase agreement. Copy of the vehicle registration. Copy of the title to the vehicle. A written payment quote of the vendor's lender If applicable. If your credit score isn't great it's best to hold off buying until you're . It won't change your credit score from bad to excellent, but it can make enough of a difference to save you money on the interest rate and the monthly payment. 4 reasons to consider an alternative to a private loan Although private-party auto loans might have higher interest rates than conventional auto loans There are a few advantages to staying away from a dealer. There are better deals on vehicles Prices for sales from tend to be less expensive than those at auto dealerships. When you get a private party auto loan it gives you the advantages of financing the same way that you can at a dealer and the savings that the private sale has to provide. It might be cheaper than the personal loan which is more likely to be more expensive since it's not secured. A lender assumes more risk with no collateral to secure the loan in the event of a default by the borrower. They offer flexibility: Rather than being limited to what dealerships offer, you can get the car you desire at a cost you can manage from a private dealer. There are loan options for bad credit: Even those with poor credit could be eligible for private party auto loans. But , as with all loans for borrowers who have bad credit, they come with higher rates of interest and monthly payments and the overall cost being higher. Alternatives to private car loans If you did not receive approval or can't find an auto loan that is compatible with the vehicle you're planning to purchase You have other options that to purchase via a private seller. Compare personal loans The best alternative to a private auto loan would be an . With unsecured personal loans that are secured, the lender will look at your credit score and income to determine loan approval. The vehicle will not be a factor in the decision to approve. This may be a good option in the event that the car you want to buy is too old or has excessive miles. The car is bought using an salvage title. The minimum loan amount is more than you want to take out. Although an individual loan may give you the opportunity to buy the vehicle you want but it's likely to have more interest than a private-party auto loan and could result in a higher cost in the end. Visit a dealer Dealers may have higher prices over private sales, however it's much more straightforward to get a loan. If you've been turned down for private auto loan Check to see if are eligible for financing in-house offered by the dealer. It is possible to qualify for a used auto loan from an existing lender that previously rejected you for a private loan. Build your savings If you are not in a rush , or aren't able to locate the perfect private sale yet making savings. The more money you put toward a car, the less you'll have to spend overall. In addition, if you're contemplating older, lower-cost models that aren't eligible for a traditional loan it isn't necessary to take on more risks by financing the vehicle with the help of a personal loan. The bottom line Private party auto loans are a fast, relatively pain free alternative to buying a car outside of the high-pressure environment of a dealership. They're not as popular, but you will still be able to locate competitive options from a variety of lenders. Also, since the prices for private purchases are less than dealership prices it is possible to save money.
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Written by Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers with the ways and pitfalls of taking out loans to purchase a car.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down complicated topics into digestible chunks.
Auto loans editor
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