Financing a private auto sale


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You’ve found the car you want and it’s for sale by a private owner.
Now you need the financing.

There’s no need to worry. Landing a private auto loan is a lot easier than you think. The most important ingredient that you need is a little patience, since there is quite a bit of paperwork to fill out. And while your loan might be approved immediately, it could take a couple weeks or more before you drive away with your car.

Once you get your hands on the keys, your first trip should be straight to the Department of Motor Vehicles to register the car in your name.

A short wait can pay off
With a private loan, you may not get the instant gratification of walking into a car dealership and driving away with a car, but there’s a good chance you’ll get the car you want at a better price.

If you buy the exact same used car at a dealer, you’ll likely need to shell out a lot more money — as much as $1,000 or more.

And thanks to private auto loans, you don’t need thousands of dollars on hand to close a deal.

Here’s what you need to know to pull off a private auto loan without a hitch.

Shop around for the best loan
It’s best to start close to home.

“Start with a bank or credit union where your checking account is,” says James Walsh, author of “Smart Wheels, Hot Deals: Buying, Leasing and Insuring the Best Car for the Least Money.”

That’s exactly what Mark Hodgson of San Diego did. After finding the BMW M Coupe he wanted on, he started looking for financing. His first stop was the credit union at his old college, the University of Wisconsin, and then another credit union in San Diego.

With those rates in hand, he hopped online and tried Capital One Auto Finance, formerly Capital One Auto Finance offered him a slightly lower rate than either credit union, so he went with it.

Once he chose the lender, the rest of the process, which included getting the seller’s title released from BMW of North America, took just a week and a half.

“They’re very easy steps, what you have to do,” Hodgson says.

A few hurdles
The hardest part may be getting approved for a loan. Only folks with good credit are likely to be approved for a private auto loan.

You’ll also pay a little bit more for financing. The rates on person-to-person auto loans tend to be slightly higher than rates you’d pay on other used car loans.

“There’s more risk involved when you’re purchasing a vehicle from an individual vs. the dealer,” says Grace Dahl, vice president of bank operations and servicing at VirtualBank.

At VirtualBank, the lowest rate available on a person-to-person auto loan 0.71 percent higher than the lowest rate available from a used-car dcealer. To land that lower rate, you’ll need to finance that private auto loan for no more than 36 months, and you’ll need to borrow at least $10,000.

The rate on your private auto loan from VirtualBank depends on your credit history, employment information and the age of the vehicle. If the car you’re looking to buy is 5 years old or older and has more than 75,000 miles, a private banker must approve the loan.

“We do deeper checks into the vehicle,” Dahl says. “We do collision reports to try to determine if it’s a stable vehicle.”

Many banks and credit unions place similar vehicle requirements on person-to-person auto loans. Be sure to shop carefully.

Capital One Auto Finance takes a different tack. It focuses solely on the credit history of the applicant.

“When we approve the customer, we don’t care what kind of car they buy because we approve them based on their credit,” says Brian Reed, director of Internet for Capital One Auto Finance.

Once you’ve been approved for a person-to-person loan, it’s time for some extra paperwork for the buyer and the seller.

Mind your Ps and Qs
The biggest thing is transferring the title to the new owner. If the seller owns the title outright, it’s pretty straightforward. It’s just a matter of a buyer and seller filling out forms clearly and promptly and then waiting for the buyer’s bank to process the paperwork. This type of title transaction could be done in just a few days.

If the seller is still making payments on the car, it can take a bit longer. You’ll need to take some additional steps to get the seller’s bank or finance company to release the car’s title.

Transferring the title information when the seller has a lien on the car could take anywhere from two to four weeks or longer.

You can trim down this time by filling out the paperwork required by your bank and the seller’s financing company with care and sending back the forms lickety-split.

“It’s typically quick in a person-to-person case because the buyer and seller want to get it done,” Dahl says.

Two important forms are the bill of sale application and the odometer statement. Some states require these forms when you register your vehicle at the DMV.

They’re not difficult to complete, but you’ll want to do so with care.

“They’re very generic, very simple, especially the odometer statement and bill of sale,” says Jean Torgersen, a titling specialist at VirtualBank.

“It’s just like going into a dealership and signing paperwork, except ours is easier. It’s very self-explanatory.”

Do your own legwork — and save
Taking care of these forms yourself and making a trip to the DMV will save you some cash.

A dealer could charge you a documentation fee of $50 to $150 to handle your title paperwork. By bypassing the dealership on a used car sale, you pay a lower price for the car and avoid a hefty fee to boot. Not too shabby.

A word to the wise — make sure your title application is absolutely perfect when you head down to the DMV. No DMV will accept a title application with erasures or crossed-out letters or words.

Nothing spoils car-buyer euphoria more quickly than a second long wait at the DMV. So if you have any questions, be sure to ask your lender before you start marking up your title application.

Don’t forget to bring your checkbook or credit card to the DMV.

Most lenders won’t roll local taxes, title and registration fees into a private auto loan. You’ll need to pay for these charges during your DMV visit.