If you’ve found a car you love but a private party is selling it rather than a dealer you can still get bank financing. You’ll have to do much of the legwork on your own, but it’s still doable.
Here’s what to expect from private car loans.
Private Party Auto Loans
When you find a car you like at a dealership, you negotiate the price, fill out a loan application, sign the agreement and drive away—assuming of course you qualify for the loan and everything else checks out.
Many of the steps are the same in a private party transaction.
Just as with a dealer, you’ll find the car, make your best deal and the lender will supply you with the cash to buy the car. You’ll then repay the lender according to the terms upon which you agree.
Qualifying is More Difficult
Most lenders apply stricter terms to private party purchases than with dealers. For example, there’s really no such thing as a subprime private party car loan. You’ll need good credit to make this work. You’ll also find lenders to be stricter about the nature of the car.
They typically won’t go back more than five model years, so if you’re looking at a 2013 automobile in 2019, you might have trouble finding a lender to back you. Mileage relative to age can also be a consideration. Some lenders also have minimum loan amounts. You’ll have to be careful to ensure the price you agree upon is within the lender’s range after your down payment.
And finally, most private party loans run for shorter periods of time than dealer loans (the maximum is usually 72 months). Speaking of which, just as with a dealer transaction, the length of the loan term helps determines the interest rate, as does your credit history.
These factors will affect the affordability of the deal for you.
About That Legwork
It’s best to get pre-approved before you begin shopping for your car, so you know your budget.
But get a copy of your credit report before you do anything else, so you know you’ll qualify. You’ll need strong credit too. Most lenders do not write subprime loans for private deals. You’ll have trouble getting financed if your score is below 620.
Depending upon the requirements of your lender, you’ll need to provide the following when you apply for the loan:
- Your full name, date of birth, address and Social Security number.
- Employment and income details.
A good place to start seeking financing is with the bank or credit union you already use. This is particularly true if you have a personal contact there. Another good funding source is online lenders offering private car loans like RoadLoans.
Getting the Loan
With all of those factors in place, you can go find the car of your dreams. You’ll return to your lender to get the check once you’ve located it and agreed upon a price with the seller.
You’ll then be expected to bring:
- A copy of the vehicle registration.
- A copy of the front and back of the vehicle title.
- A bill of sale containing the details of the agreed-upon purchase.
- A written 10-day payoff quote from the seller’s lender (if applicable).
Satisfied everything is in order, the lender will issue the check, which you will hand over to the seller in exchange for the keys, the registration and the title document, which the seller will sign over to you.
You’ll take those documents to the DMV to register the car in your name with your lender listed as the lienholder. The DMV will mail the title document (the pink slip) to the bank, where it will be held until you pay off the loan.
Knowing what to expect from private car loans prepares you for all of the extra work you’ll have to do. In a dealer transaction the seller handles many of these steps for you. You’re responsible for conducting them on your own in a private sale.