Millions of people buy a car every year. For the budget-conscious, this might mean buying from a private party. But private party auto sales rarely come with financing—this is where private party auto loans come in. A private party car loan offers the perks of financing with the savings that typically come with buying from a private individual versus a dealership.
How Do Private Party Auto Loans Work?
Private party auto loans work much the same as a typical loan for a dealership purchase. Private party loans are usually secured, and the car acts as collateral. If you default, your lender has the right to repossession.
Other similarities private party auto loans share with traditional loans are annual percentage rates (APR) and fixed loan terms. Both of these affect the amount you'll pay each month. It depends on your lender, but a private party loan term typically ranges between 12 and 84 months. Interest rates on private party loans are usually higher than those for cars bought through a dealership and can vary based on several items, such as:
- Your credit history
- Amount of the loan
- What state you live in
- How long the loan term is
- If the lender offers discounts
- How old the car is
How Do You Apply for Private Party Auto Loans?
When you apply for a car loan with a private party seller, you'll fill out an application at your chosen lending institution. You'll need information, such as:
- The vehicle identification number (VIN)
- Vehicle make and model
- Current mileage
You'll also provide personally identifying information, such as your SSN, mailing and physical addresses, name of employer, and annual income. The exact information you'll need may vary by institution.
Lenders then review your information and pull a credit history report to decide if you qualify for a private party auto loan, what your interest rate will be, and how long your loan term can be.
After you choose the loan that best fits your situation, you might then need to give the lender more information, such as:
- Car registration and title
- Bill of sale
- Amount of purchase quote
Depending on your lender, you might receive a check made out to the seller for the sale amount or receive the loan proceeds into your account after the loan has closed.
What if You Have Bad Credit—Can You Still Get a Private Party Auto Loan?
Even if you have less than perfect credit, it's still possible to get a car loan. You might need to shop around a bit more for terms you can agree with, and you could face much higher rates than buyers with spotless credit—but private party auto loans for buyers with bad credit do exist. If you're not making the purchase right away, it won’t hurt to see how you can boost your credit score before applying. You won't go from bad to great credit in a short time, but you might boost it just enough to get into the coveted approval range and shave some digits off the interest rate.
How Does the Lender Determine Eligibility for Private Party Auto Loans?
Just like any other loan, asking to borrow for a private party vehicle sale isn't as easy as just walking into the lender's office and asking. There are criteria you must meet to receive funding. These criteria can include:
- Minimum credit score
- Minimum annual or monthly income
- Maximum car value
- Maximum mileage
If you're already considering a specific lender, take a look at their website, send them an email, or visit a local branch to see about eligibility requirements.
Finding the Best Private Party Auto Loans Based on Budget
To be sure you're getting the absolute best loan for your unique situation, you have to shop around—don't take the first loan you find. In fact, get several quotes. Compare the APRs, payments, loan terms, finalizing fees, and penalties. These are all critical factors. The lowest price isn't necessarily your best option if you'll pay for a longer period or a vast majority of your payments go to interest instead of principal.
Also, before you sign anything, understand the loan payoff period and associated costs. These can vary depending on how long your loan is for, your credit report, how old the car is, and how many miles it has. Performing your due diligence could save you thousands in the long run. Using a car payment calculator can help you discern the best loan for your finances.
What Does the Application Process and Closing Look Like for Private Party Auto Loans?
It can be a lot of back and forth.
When you're ready to apply, make sure you bring your identification, proof of employment and income, the vehicle registration and title, and a bill of sale. You'll fill out the application with the requested information, after which the lender will review your creditworthiness. At this point, one of three things will happen:
- The lender will ask for more information
- You'll get approved
- You'll get denied
Hopefully, it's the second bullet. After approval, you don't have to accept the loan. In fact, it's a good idea to apply with several lenders and choose the option that fits your budget best. When you are ready to proceed and accept, the loan moves into the closing process. Here is where the lender writes a check for the private party seller, and you transfer the title and registration into your name. For more information on this process, please visit your state's DMV office.
Private Party Auto Loans with PrivateAuto
Instead of going through all the steps outlined above, you can cut to the chase and apply for your private party auto loan with PrivateAuto. Our new financing feature directly integrates buyer financing right in the app, so you don't have to waste time working with a third-party bank to get your loan. You'll complete all paperwork right in the app, too—you can even esign! Browse our inventory of used cars and find your next vehicle with PrivateAuto.
If you have questions, reach out to a financial advisor in your area to see how private party auto loans can work for you.