Buying a car can be a fun and exciting experience — until you realize how expensive it is to buy from dealerships. (Not to mention unpleasant. Pushy salesmen and bad coffee? No, thanks.) That’s why many people buy their cars from private parties, taking out private party auto loans to make their purchases. Private party sales prices are considerably lower than they are at dealerships, and they don’t involve dealer commissions, which is a huge draw to potential car buyers.
A private party auto loan is a budget-friendly and flexible option for buying your ideal car straight from another individual when you don’t have the full amount of cash on hand. While convenient, this kind of auto loan isn’t for everyone. Find out how to get a loan for a used car from a private seller and what to expect along the way in our answers to some frequently asked questions about private auto loans below.
What are private party used car loans and how do they work?
Auto loans for private sales work similarly to traditional auto loans. They are secured loans that use the car as collateral, so if you have to default on your loan down the road, your car could be repossessed by the lender.
When a person decides they want to purchase privately, they borrow funds directly from a lender (i.e. your favorite bank or credit union) who pays the seller upfront. If you are approved for a loan, it must be paid back to the lender over a period of time with interest. Private party loans give you the best of both worlds: you get the low cost of a private purchase while also getting the affordable financing option that a dealer would offer. The downside is that they may have higher interest rates than a conventional auto loan.
Before looking into a private party used car loan, you must first decide which car you want to buy. Once a lender is provided the details about the car you intend to buy, they can give you an estimate of how much you’d pay in monthly payments and interest. Private party loan terms can span as little as 12 months, to as much as 84 months.
What determines eligibility for an auto loan from a private seller?
As with any other loan, acquiring a private party car loan isn’t as simple as walking into a credit union and asking to borrow money. You must meet criteria to get funded. Some criteria might include a minimum credit score or a baseline income. Other financial institutions may even set limits on the value of a car you can buy and how many miles the car can have on it.
If you already have a lender in mind, visit their website, call them, or visit the lender in person to find out what their eligibility requirements are.
How can you find the best private party loan for your budget?
In order to find the best private party car loan for your financial situation, it’s best to shop around. Get quotes from a number of different lenders and compare their APRs, monthly payments, terms, fees, penalties, and so on. All of these factors are important considerations. Just because one institution quotes you a lower monthly payment doesn’t mean it’s the best option. This same institution will probably charge more interest over time.
It’s also smart to look for features or specials that add flexibility to your overall budget. Institutions that offer the Kasasa Loan™ give you the option to pay ahead and access that cash later for any purpose. Check with your bank or credit union to see if they offer Kasasa Loans.
Before committing to one lender, it’s important to know what their payoff periods and costs are like. These will vary based on the length of your loan, your credit history, the age of the car, and its miles. When you’ve done your research, you can then choose a loan that best suits your budget.
For more help on deciding which loan is for you, check out this car payment calculator to get an estimate on your monthly loan payments based on the term, loan amount, and APR you need.
What’s the application and closing process like?
When you know which car you want and the institution you prefer to do business with, it’s time to apply for the loan. Come ready with a form of ID, proof of income, vehicle registration, the vehicle title, and the bill of sale. You’ll start by filling out an application that includes vehicle information, personal information, and credit information. These factors will determine the terms of the loan.
Once the lender has approved you for funding and explained the terms, you can choose whether or not to accept. When you’re ready to close, the lender will write a check to the seller and you’ll transfer the title and registration from the seller’s name to your own. Check with your local DMV for more details on this process.
Remember: financing your private party car purchase is doable and not all that different from getting a traditional auto loan. When in doubt, talk to a trusted financial advisor in your area to learn how this type of loan can work for your specific needs.