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What Is a Private Party Auto Loan and How Do You Find One?

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Buying a car from a private seller can save you money in several ways. For one, it won’t have the dealership markup. But without a dealer to help you find financing, you’ll either need cash or a private party auto loan. Private party auto lenders issue the funds to pay the seller and you pay the lender back over time.

How does a private party auto loan work?

1. Determine your price range

Check your credit score and use an auto loan calculator to figure out what you can afford. Vehicle ownership costs include auto insurance, registration and maintenance, so your payment should be financially comfortable for you. Consider getting an auto loan preapproval from a lender of your choice. This way you’ll definitely know the price range you’re approved for and the maximum monthly payment you can expect. Here are the steps to purchase from a private party.

2. Find a car and compare offers

With your budget firmly in place, start the car search. Once you decide on a car and negotiate the price, apply to a few lenders. You’ll need the following information:

  • The car’s vehicle identification number (VIN) and mileage.
  • Your name, address, Social Security number (SSN), contact details, employment information and income.
  • How long you want the loan to be and how much you want to borrow.

Private party auto loan rates tend to have higher rates than vehicles bought from a dealership because lenders consider it riskier to buy from an individual than a business. Shop around for the best rates, as the three main credit bureaus allow all hard pulls related to the same type of loan to count as one hard pull within a 14-day window.

3. Sign on the dotted lines

Choose a private party auto loan offer and follow through with the paperwork. The exact terms of your loan will depend on the final amount you borrow. Your lender can help you finalize the loan and get the money to the seller. They may send you a check to sign over to the seller or they may deposit cash into your account.

Where to get a private party auto loan

Many financial institutions from national banks to local credit unions offer private party auto loans, including Bank of America, First Credit Union and LightStream. But not every lender does. Capital One, Wells Fargo and Chase only offer car loans through dealerships.

Check that the lender you’d like to work with offers private party auto loans and whether there are any restrictions. Lenders may limit vehicle age and mileage, and have a minimum loan amount.

Rates and costs

Examples of used and private party auto loan rates
Company Starting APR*
Bank of America 5.59%
First Credit Union 3.29%
LightStream 3.49%
PNC Bank 4.94%
USAA Bank 1.89%

*May require certain loan amount and/or term; may include an auto pay discount; may require membership

How to qualify for a private party auto loan

To qualify as a borrower for a private party car loan, you typically need to meet a lender’s credit score and income requirements. Many lenders prefer credit scores of 640+ and incomes of at least $1,500 to $1,800 a month.

Are there private party auto loans for bad credit?

You bet! Even if your credit score is below par, you can still shop around for the best private party auto loan. Take a look at car loans for bad credit.

As with all bad credit loans, you’ll face higher interest rates than those with the strongest credit. Provided you have a few months, it may be possible to get your score into good shape before you apply. You won’t go from subprime to super-prime in that time, but you might move into the approvable range and shave off a bit of your interest rate.

Private party auto loans vs. alternatives

Alternatives to private party auto loans include HELOCs, home equity loans and borrowing from friends/family. But the go-to alternative is a personal loan. In an unsecured personal loan, the lender doesn’t take what you’re buying into consideration, only your income and credit. This can help you if the private party car loan didn’t work out for reasons such as the following:

  • The vehicle has more miles or is older than the lender allows.
  • You’re purchasing a vehicle with a salvage title.
  • You want to borrow less than the lender’s required minimum loan amount.

The biggest downside is personal loans usually have higher interest rates because they are not backed by anything other than the borrower’s promise to repay. Borrowers with high credit scores (740+) may still find competitive rates, though. Here are the current personal loan rates.

 

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