How to Get a Car Loan for a Private Sale

You’ve finally found the perfect car from a private seller, but you’re not willing to pay in cash for your new ride. This situation is common among used car buyers and often causes individuals to look for a car only at a dealer. Follow these steps to find the best car loan for a private sale vehicle. You don’t have to stick to cash-only purchases to get a great deal from a local seller.

How a Car Loan for a Private Sale Works

The basic idea behind a private sale car loan is the same as financing a used vehicle at a dealership. A third-party lender can offer this service because it’s secured by your vehicle. This collateral allows them to repossess your ride if you default.

Start by comparing the types of lending available and reviewing the features of loans. Lenders set minimum and maximum amounts, as well as available lengths. The maximum length is 84 months for most lenders, which gives you lots of payment structure options.

Benefits of a Used Car Loan

When you finance any purchase, you’ll pay more over time than the original asking price. Financing also gives you the freedom to invest in a more reliable, stylish vehicle than your budget allows.

Balance the pros and cons of upfront investment and a lending structure to determine the best purchasing method for your personal situation. Don’t let a lack of funds keep you from purchasing the vehicle of your dreams, but be sure you understand the entire application process and risks involved before you sign up for auto financing.

The Application Process

After the application process, you’ll be preapproved for a specific amount. This usually requires a credit score hard inquiry, which can affect your score if you make multiple inquiries. The application process requires personal information and information about the vehicle.

Types of Private Sale Car Loans

There are a few types of car loans worth exploring as you look for the best deal to finance your private-party purchase. Here are the basic options available to you:

• Credit union
• Traditional bank
• Peer to peer

These options all have pros and cons, so it’s important to review each one before you take the plunge and apply. Check out these three options before you start an application.

Credit Union Financing

Credit unions are not-for-profit institutions that are often smaller than traditional banking corporations. They typically require membership and only accept individuals in a particular industry, region, or company.

A credit union application process is usually more personal. These institutions are more willing to look over less-than-ideal credit scores and other unfortunate features of your application. You’re also more likely to speak with a local individual who can help answer questions about the process.

Traditional Bank Auto Loans

Banks have massive cash flows and plenty of financial muscle when it comes to financing projects. They’re also more conservative in lending, particularly to private transactions. A used car seller may prefer that you work with a traditional bank, but you may pay higher interest rates.

Peer-to-Peer Lending

Prefer to work with a person, not an institution? There are a number of peer-to-peer lending programs available to request a personal loan from an investor. These programs offer you an unsecured loan, so you won’t have to put your ride up for collateral. Explore a few options to compare interest rates and credit score requirements.

Secured vs. Unsecured

Because the car you’re purchasing is acting as collateral, the type and value of the vehicle affects the success of your application. Some private-party auto loans aren’t secured by your vehicle, but this typically increases the interest rate by a significant amount. Experian, a credit bureau, found that it increased average rates in the third quarter of 2018 from 4.37 percent to 19.72 percent.

Lenders have a few options for delivering your financing amount. Some offer a check made out to the seller, while others deposit the amount in your account to give you flexibility in payment style.

Gap Insurance for Car Loans

One major fear with used vehicle financing for a private sale is becoming upside down on the loan. Basically, this means owing more on the financing than the vehicle is worth. This can happen if your interest rate is high, your used car depreciates quickly, or a combination of the two.

Consider purchasing gap insurance to protect yourself in this situation. The risk of getting upside down in a loan doesn’t mean you shouldn’t finance your used car purchase, but you should be aware of the risks and consider insurance options to stay safe.

Gap insurance covers the difference between the value of your vehicle and the outstanding loan balance. It’s helpful if your vehicle becomes damaged while you owe more than it’s worth because your typical insurance won’t cover this difference and you’ll owe it to your auto lender.

Information for Your Auto Financing Application

The exact application process can vary, but there are a few similarities between peer-to-peer, traditional, and credit union applications. You’ll likely need this list of documents and information to complete your application:

• Your name and other personal information
• Income and employment information
• Registration for your vehicle
• Your credit score
• Copy of the vehicle’s title and bill of sale

This information helps a bank or peer assess your reliability and the value of the asset you’re using to back your financing. The seller will need to provide a few of these details to help you apply for a loan, but once you’re approved you’ll have a check or money in your account to pay the seller in full. The bank or peer lender takes full responsibility for the payment process.

Shop for Cars and Secure a Loan With PrivateAuto

Don’t let the lending process prevent you from purchasing your dream ride. Search listings today to find a quality used vehicle and submit an application for funding on PrivateAuto. If you have questions about the lending or shopping process, contact PrivateAuto today to learn more. Test drive a ride in your local area and use a competitive financing option to secure your dream ride.