Private party auto loan: What it is and how to find one

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If you’re planning to buy a vehicle from a private seller, you may consider a private party auto loan.

There are plenty of private party lending solutions for vehicle purchases through a private seller. By securing a private party auto loan, you can finance a private vehicle purchase the same as you would through a car dealership.

What is a private party auto loan?

Private party auto loans are lending solutions designed for those choosing to transact with a private lien holder. These loans make it easier for people to finance their private vehicle transactions while also avoiding unnecessary markups from dealerships. However, these loans come with some risks.

For example, private party auto loans are not as widely available as those offered on new vehicle purchases. These loans also often come with a higher APR attached to them.

However, there are ways to mitigate the risks associated with private party auto loans and find a lender that can offer an affordable rate that works for your specific financial situation.

How does a private party auto loan work?

There are a few simple steps you’ll need to follow to secure the best private party auto loan solution available:

  • Credit check: Prior to finding a lender, you’ll need to first check your credit. This will give you a better understanding of what interest rates and loan amounts may be available to you.
  • Budget accordingly: Once you know your credit score, it will be easier for you to set a realistic budget and plan how much you can spend out of pocket versus how much you will need to finance.
  • Vehicle selection: Before you approach a private party auto lender, select the car. Be sure you know the type, age and mileage. This will factor into the type of loan you are eligible to receive.
  • Loan quotes: In order to secure the best lending solution, you’ll need to solicit quotes from a few prospective lenders. Shop around to find the loan products that best suit your needs.
  • Loan finalization: Once you’ve selected a private party auto loan that works for you, your chosen lender will send a check to either you or directly to the seller. They may even provide direct deposit to your account. Note that the transfer of funds may take a few days, so be sure to communicate this with the private seller.
  • Transfer ownership: This step largely depends on the state in which you are transacting with a private seller. Consult with your state’s Department of Motor Vehicles to understand what processes are necessary in order to transfer ownership into your name.
  • Payment schedule: Many private party auto lenders provide the option to set up autopay, or make payments manually through an online portal. Discuss your options with your chosen lender to avoid missing payments.

Where to get a private party auto loan

You can secure a private party auto loan through large financial institutions, local credit unions and online lenders. Note that loan products vary from institution to institution, and not all lenders carry private auto loans as an option.

Additionally, when seeking out a private party auto loan, some lenders may require the vehicle to meet certain criteria to be eligible for receipt of such a loan. For instance, they may require the car to be under 10 years old with less than 120,000 miles in order to qualify for a loan. Still other lenders may set a minimum loan amount prior to consideration. Be sure to carefully review the lender’s criteria before agreeing to receive their loan product.

Can you get a private party auto loan with bad credit?

Private party auto loan options exist for all credit situations. Even those with poor credit can be eligible to receive such a loan. However, as with all bad credit loans, these products come with a higher interest rate, and therefore will have higher monthly payments.

If you have time before purchasing the vehicle becomes absolutely necessary, consider holding off on the purchase until you’re able to improve your credit score. While a few months’ time won’t transform your credit from poor to perfect, it can provide enough of a difference to earn some savings on the interest rate and monthly payments.

Alternatives to private party auto loans

If your credit is too poor or the vehicle you selected doesn’t match the lender’s criteria, there are alternatives you can pursue to buy through a private seller. The top alternative after trying to secure a private party auto loan is attempting to get a personal loan. Unsecured personal loans are one of the top alternatives because they don’t require the lender to take into consideration what you are planning to purchase. Instead, the lender only considers your income and credit score to determine your loan eligibility.

This may be a good option for you if:

  • The selected vehicle is too old or has too many miles on it.
  • The vehicle is being purchased with a salvage title.
  • The minimum loan amount is more than you wish to borrow

While this option can allow you to purchase the vehicle you want, personal loans may carry higher interest rates compared to private party auto loans.

Bottom line

When planning to purchase a vehicle from a private seller, private party auto loans provide a great option for those seeking to avoid dealership markups.

Interested buyers must do their due diligence and ensure the vehicle they select meets the lender’s criteria, and that their credit score is high enough to earn them the desired loan at an affordable interest rate.

When all else fails, an unsecured personal loan can be used; however, these products may come with a higher interest rate and may end up costing more overall. Be sure to weigh your options accordingly and shop around before deciding on a specific lender or loan product.