back to articles | January 25, 2023 | Moses Mwangi

Categories: Auto Loans & Financing Types of Car Loans

Private Party Auto Loans: What are They and How Do You Find One

How do private-party auto loans come in handy? The private-party auto loan ensures you can eliminate the financial challenges of buying a car from a private seller. One main benefit of the loan is that it is cheaper than traditional personal loans.


How do private-party auto loans come in handy? The private-party auto loan ensures you can eliminate the financial challenges of buying a car from a private seller. One main benefit of the loan is that it is cheaper than traditional personal loans.

Also, it is easy to qualify for private-party loans as the car acts as collateral. So, what are private-party auto loans, and how can you get one? Here is a comprehensive guide on private-party auto loans.

What are private-party auto loans?

Private-party auto loans enable you to borrow money from a lender to purchase a car from a private seller. The loans may be slightly expensive compared to those from a dealership because of the risky nature of private sales. So, when do you need a private-party auto loan?

  • When car dealerships lack the type of car you need
  • When private sellers provide vehicles at lower prices
  • When you do not wish to deal with dealerships

How to find a private-party auto loan?

You can find private-party auto loans from most financial institutions. However, not all lenders provide private-party loans, so confirm whether your selected lender provides the private party loan. Also, check for any restrictions. Some lenders may restrict loan amounts, vehicle mileage, and car age. The borrower and vehicle should meet the financial institution's criteria.

For instance, you can find lenders with requirements such as less than 100,000 mileage or ten years old. If the car is more than ten years of age and has more than 100,000 mileage, you may need another lender. Thus, review your lender's criteria before applying for the loan.

How do private-party auto loans work?

The private party loans work the same as any other auto loans. The car you wish to purchase will act as collateral. Therefore, the loan will fall under the secured loans category. If, under any circumstance, you fail to pay the loan, the lending financial institution will repossess the car.

In addition, private party loans have a fixed long-term and annual percentage rate that will impact your monthly payments. The loan terms differ between lenders, but you may find most with a 12-84 months repayment term requirement.

Also, the rate of interest you pay will depend on several factors. The topmost factors that will impact your private party auto loan's interest:

  • Autopay discount
  • Your lender
  • The age of the car
  • The car's mileage
  • Loan term
  • Your credit score
  • The amount you wish to borrow
  • State of residence

What steps can you take to get a private-party auto loan?

Financial institutions, such as banks, online lenders, or credit unions, are responsible for providing private party loans. If you want to get an excellent offer from a financial institution, you should follow several steps. Here are the steps to follow:

1. Consider your eligibility

Before providing loans, lenders often have specific requirements from the cars and the borrowers. The requirements may be:

  • Car mileage
  • Vehicle's age
  • Your credit score
  • Upfront payments
  • Current income source
  • Car price floor

Thus, the first step should be to determine your eligibility. You can call the lenders online or visit the financial centre to get detailed eligibility information.

2. Set a budget

Setting a budget will help you determine which vehicle you can afford. You can create a budget by checking your credit score and history. The data will help you to establish the loan amount you can qualify for and the interest rates you can pay.

Once you know your credit state, you can determine how much you will need. The budget will also help you decide which car you can afford.

3. Compare offers

One essential thing you should do is compare offers from various lenders. Different lenders offer varying loan terms. You may find some lenders offer more acceptable terms than others. Thus, consider monthly payments, fees, penalties, loan terms, and interest rates.

The loan terms may impact how much you will need to pay. For example, a shorter loan term could lead to high monthly payments but less total interest. On the other hand, long loan terms may translate to low monthly payments but higher total interest. Therefore, make you choose an offer that meets your specific needs.

4. Apply for the loan

After you choose the car you need and the offer that suits you best, proceed to the paperwork. Some of the information you may need to provide the chosen lender includes the following:

  • Your Social Security Number, address, name, employment information, and contact details
  • The vehicle's mileage and identification number
  • A bill of sale
  • A copy of the back and front of the vehicle title
  • The loan amount
  • The loan duration
  • Current debt obligation
  • Model and make of the vehicle
  • Copy of vehicle registration

The lender will review the provided information and your credit score to establish whether you qualify for the loan. If the financial institution approves your loan, they will help you to finalize it. The lender will give you a check to sign over to the private seller.

They may also deposit the cash directly into your account, where you will transfer it to the seller. Also, they will offer you details on the amortization schedule and payment due dates.

The details will inform you how much principal and interest you will pay monthly. You can also choose autopay to ensure you do not miss out on payments. The final step will require you to transfer the vehicle's registration and title to your name. Make sure that the lending financial institution is on the title.

How to qualify for a private auto loan?

You only need good credit to qualify for the private-party auto loan. Also, it would help if you had enough income to facilitate the car's monthly payments. If you wish to buy a used car, your average credit score is 640 or higher. Your monthly income should also be at least $1500-$1800.

If you have less than a 500-credit score, you are less likely to qualify for a private auto loan. However, some lenders will provide car loans even if you have bad credit. The only downside to bad credit loans is higher interest rates. Therefore, if you have bad credit, you can wait a few months while improving your credit score. The wait will help you reduce some of the interest rates.

The bottom line

Private-party auto loans offer one of the best solutions for financing vehicle purchases from private sellers. They are much cheaper and easier to qualify for than traditional personal loans. The only trick is to find a lender that will meet all your needs.