What Is a Private Party Auto Loan and How Do You Find One?
A “private party auto loan” sounds a bit mysterious and exclusive, but it’s not. It is just the loan you use when you buy a used car or truck from an ordinary person who owns and probably drives the vehicle – instead of a dealer, fleet owner, or auction house. In other words, the seller is a “private party” rather than a business.
Buying a car privately in this way can be smart. Instead of someone else profiting from the transaction, you and the owner can share the dealer’s usual markup. That means he or she gets more than a trade-in would provide, and you get a car for less money than you would pay on a dealer’s lot. The only drawback is that you will also take on some additional risks.
Read on to discover how you can finance this sort of transaction and how to minimize those risks.
How does a private party auto loan work?
Let’s break down into steps how you get and use a private party auto loan:
- Discover your credit score – If you don’t already know your score, use LendingTree’s free credit score to find out. It’s quick, simple and 100-percent free. You’ll need your score for the next step.
- See what you can afford – Use the LendingTree auto affordability calculator to get an estimate of how much you can borrow.
- Recognize that private party auto loans are typically shorter (up to 48 months) than some others and you may need a bigger down payment (often 20 percent). So get quotes.
- Many lenders will pre-approve you. That means you can be sure you can borrow the money you need and will know the terms of your loan before you even find a vehicle you want to buy. Sellers are more likely to take you seriously if you can prove you are good for the purchase price. Some lenders have restrictions on the age and mileage of vehicles, so make sure you know about any of those.
- Even with pre-approval in place, it is going to take days to complete the deal. You need to find a seller who is willing to accommodate this timeline.
- Those days could stretch to weeks if your seller still owes payments on the vehicle. Read on to learn more about this.
- You must satisfy yourself about the identity of the seller, the car’s title, and the vehicle’s condition (more below).
- Once you have satisfied yourself about those and have agreed on a price, you can sign your loan application and set the finance wheels in motion.
- Your lender will have set procedures and processes for the transaction, so make sure you understand and follow those.
- Your state may have its own requirements for documenting your private party auto purchase. Check with your DMV’s website to make sure you comply.
- Once the purchase money is available, you can transfer the vehicle’s title to your name. You may also be required to have a bill of sale. Indeed, it is generally a good idea to have one of those even if it is not compulsory.
- Finally, you should register your vehicle with your DMV.
- Now mail your title to your lender.
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. Start off with that online search, but talk to your bank or credit union too.
Just as with all bad credit borrowing, these loans likely come with higher interest rates than preferred. Providing you have time, it is a good idea to get your score into as good shape as possible before you make your application.
If you are starting with low credit, it can be possible to boost your score significantly within just a few months. You won’t go from subprime to super-prime in that time, but you might move into the approvable range and shave something worthwhile off your interest rate. Discover more at Car Loans for Bad Credit.
When your seller has an outstanding auto loan
When you first inspect the car or truck you want to buy, make a note of its vehicle identification number (VIN). You can then run a search on your state DMV’s website to check for “liens.”
These are legal charges on the vehicle, including any loans that it secures. And those must be paid in full before you can acquire legal ownership. If possible, get the seller to settle them upfront.
Do not worry if he or she cannot manage that. But be aware your lender is highly likely to insist on settling outstanding balances directly with the seller’s lender or through some escrow mechanism whereby money is held by a neutral third party. That is a good thing that protects you!
Let the buyer beware
Plenty of people have horror stories about cars they bought from dealerships. So do not feel intimidated about buying from an individual.
But you may feel especially vulnerable if you are dealing with a private party who is also a stranger. The principle you must follow is “let the buyer beware”. In particular, watch out for these four things:
1. The Seller
You need to confirm the seller’s identity. It is not rude to ask for photo ID (or to take a snap of it on your smartphone) and to verify his or her address. If you get bad vibes, dig deeper.
You must be sure the person you are going to pay is the legal owner of the car. So compare the seller’s ID with the name on the registration document. You might as well take a snap of that too.
2. The Vehicle’s History
Obviously, make sure the VIN on the vehicle itself matches that shown on the registration document. Then check the car’s history on your DMV’s website.
And consider paying for a report from a private company, such as CARFAX. That should tell you about any liens, accidents, flood damage, and so on.
Also, run the vehicle’s VIN on Safercar.gov. That will alert you to any recalls to which it has been subject. You need to be certain any recall work has been done.
3. The Vehicle’s Value
Make sure you are not paying too much by looking up the vehicle’s value (based on its make, model, year, mileage, condition, and extras) on websites such as Kelley Blue Book, Edmunds, and DriverSide.
4. The Vehicle’s Condition
Carefully check every part of the car from its tires all the way up to its sunroof – and from fender to fender. Look out for signs of body repairs, resprays, and rust. See if the wear on the pedals looks roughly appropriate for the odometer reading.
Take it for a test drive, including on a stretch of highway, and listen out for odd sounds. Keep an eye on the temperature gauge and watch out for any smoke or excessive vapor from the exhaust. Make sure everything electrical (power seats, windows, wipers, lights, entertainment system and so on) works. Do an online search for faults that are common on that model of car and check those. And do all the usual tire kicking and suspension bouncing stuff.
If you have any doubts or do not feel qualified to make an assessment, you may want to consider paying a mechanic to carry out an inspection.
Just keep in mind that you can never be too careful!