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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 decisions by offering interactive financial calculators and tools as well as publishing objective and original content, by enabling users to conduct studies and analyze information for free – so that you can make decisions about your finances without trepidation. Bankrate has partnerships with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that appear on this site come from companies that compensate us. This compensation may impact how and where products are displayed on the site, such as, for example, the order in which they may be listed within the categories of listing and other categories, unless prohibited by law. This applies to our loans, mortgages, and other products for home loans. However, this compensation will have no impact on the content we publish or the reviews you see on this site. We do not include the entire universe of businesses or financial deals that could be open to you.


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5 min read Published October 13, 2022

Written 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 details of taking out loans to purchase the car they want.

The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to control their finances by providing clear, well-researched facts that break down complex topics into manageable bites.

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Private party loans are often easier to get than conventional loans. However, lenders might charge higher due to the fact that buying directly from an individual is considered riskier than buying from an agent. Despite the higher cost for private party auto loans however, there are ways to locate lenders who offer auto loans you can afford. What is a private-party auto loan? The private-party auto loan lets you finance a vehicle sold through the proprietor, and not by a dealer. Buying from an individual often results in paying less for the car itself. But since they come with higher risk to the lender and therefore aren’t as readily available like other auto loans and, often, they have higher interest rates. “Because because of the nature of private-party sales, rates tend to be higher than you would find at an auto dealer,” says Strati Papageorge, senior vice president of auto product management for PNC Bank. “But the price for the customer is usually a lower vehicle price which means they will get a low-cost price.” There are ways to mitigate the drawbacks associated with private-party auto loans and to find an lender who will provide an auto loan you can be able to afford. How does a private party auto loan works Your budget and the local availability of used cars are the most important factors to take into consideration. The financing process is very similar to buying the latest or used vehicle at a dealership. Create a budget To create your budget, you must first look over your credit score and history to determine what and loan amount you could be eligible for. When you are aware of the condition of your credit, it will be much easier to decide how much you can pay for out of pocket and figure out how much you’ll need to finance. Find lenders to compare which vehicle you’re planning to buy, look for potential lenders that provide private party auto loans. Compare rates of interest, loan terms, monthly payment, penalties and fees. Because private party loans tend to be more expensive and require preapproval prior to you start looking. This way, you will be aware of what you can spend — and what you will be expected to pay each month. Pick a vehicle that is available for private sales are usually limited to local inventory, so you should keep a few options in mind when searching for a second-hand vehicle. Check the cost-to-own estimates from reliable sources such as Edmunds and Kelley Blue Book. These estimates can help you navigate to a reliable car. You might be able to use a national website to find the best vehicle, but taking the test drive or purchase — along with dealing with transfer of title outside of the state — may be more hassle than the car’s value. When you’re ready to buy through a private seller check out your state’s laws regarding title transfers. These should be available on the state’s Department of Motor Vehicles’ website. Complete the transaction after you find a vehicle and sign the loan agreement the lender will issue a check either directly to you or the seller. If you or the seller decide to use direct deposit, ensure that the seller understands that transferring funds can take a few days. Your lender will send you the dates of payment due and an , which tells you the amount of money that will be allocated to principal and interest each month. If you’re able to, opt for automatic payment. It is a great method to ensure you make payments on time, without having to send a check or constantly logging into an online account. Just be sure to check whether your payments have been processed each month. Where can you find private party auto loans Most large financial institutions, such as community banks, local credit unions and online lenders — offer private-party auto loans.The vehicle will need to meet certain criteria. For instance, lenders typically require the car to not be older than 10 years and less than 100,000 miles. Other lenders may have an upper limit on the loan amount. If the vehicle you want is valued at $6,000 and the lender does not offer loans this small then you’ll need to locate a different lender. Take note of the lender’s requirements prior to applying for a private party auto loan to avoid taking a hit to your credit rating for an loan that you aren’t eligible for. How to apply for a private-party auto loan Once you have found the car you wish to purchase from a private owner be prepared to provide a lender with basic personal details such as your complete name and birth date along with your address, Social Security number, as well as contact information. Employment and income information. Current debt obligations, like mortgages. You should also have certain documents and information about the vehicle you want to buy, including: Model and make, year, and mileage. The VIN, or vehicle identification number. or VIN. The bill of sale which outlines the purchase contract. Copy of the registration of the vehicle. Copy of the vehicle title. A written payoff quote from the seller’s lender in the event of a need. If your credit isn’t as good, consider holding off on the purchase until you’ve got . It isn’t going to make your credit go from bad to excellent, but it can bring about enough change to help you save on interest and monthly payment. 4 reasons to consider the possibility of a private-party loan Although private-party auto loans may charge higher rates than standard auto loans, there are some advantages to staying away from a dealer. There are better car deals: Sale prices from are typically lower than at dealerships. With a private party auto loan, you get the benefit of financing like that you can at a dealer as well as the savings a private sale is likely 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 takes on more risk in the absence of collateral to secure the loan if the borrower defaults. They offer flexibility: Rather than being limited to what dealerships offer, you can get the car you desire at a price you can afford from a private owner. There are loan options for people with bad credit: Even those who have poor credit might be eligible for private auto loans. However, like all loans for borrowers who have bad credit, they come with higher rate of interest and monthly payment and a higher overall cost. Alternatives to private party automobile loans If you did not receive approval or can’t find a private party auto loan suitable for the car you’re planning to purchase You have other options that you could consider buying by selling it to a private dealer. Compare the personal loans The most suitable alternative to a private auto loan would be an . For non-secured personal loans they are unsecured. The lender considers your income and credit score to determine loan the loan’s eligibility. The vehicle will not play a role in an approval decision. This could be an excellent alternative if the vehicle you’re looking to purchase is too old or has far too many miles. The vehicle is being bought using an salvage title. It is required that the minimum loan amount is higher than you want to take out. Although the personal loan could provide you with the chance to buy the vehicle you’re looking for, it will likely carry an interest rate that is higher than a private-party auto loan and could be more expensive in the end. Visit a dealer Dealers may have higher prices than private sellers, but it’s much easier to obtain an loan. If you’ve been rejected for an auto loan, see if you qualify for in-house financing that is offered by the dealer. You could also be eligible for a used vehicle loan with a lender that previously rejected you for an individual loan. Make savings if you are not in a rush , or haven’t found the right private sale yet, keep building your savings. The more you are able to put toward a car, the less money you’ll spend in the long run. If you’re looking at older, cheaper models that aren’t eligible for a conventional loan You don’t have to take on more risks by financing the car by using the help of a personal loan. The bottom line: Private automobile loans can be a quick and easy option to purchase a car without the pressures of a dealer. They’re not as widespread however, you’ll be able to find competitive options from a variety of lenders. Also, since the prices for personal purchases are usually lower than the prices at a dealership and you can to save money.


Authored 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 borrowing money to purchase the car they want.

Editor: Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to manage their finances with precise, well-studied information that breaks down complicated topics into digestible chunks.

Auto loans editor

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