Financing a Car from a Private Seller

Milad Hassibi April 11, 2018


Most banks and lenders commonly offer auto loans that let you buy a car from a private party, but getting a car loan for a private party sale with bad credit can be a little trickier.

This guide will walk you through how you can get an auto loan for a private seller, with good or bad credit!

Private party auto loans are offered by a wide array of banks and other financial institutions, and there are a few ways you can get a car loan for a private sale with bad credit.

Many consumers ask themselves: “How can I get a private party auto loan with bad credit?”. Or they may be wondering how a private party auto loan works.

Here we break down how you can get a private party auto loan with bad credit.

How to get a private party auto loan

Option 1: Talk to your bank first

The first step when searching for a private party auto loan should be contacting your local bank or credit union.

Almost all banks can offer you an auto loan for a private seller purchase. 

Get a Car Loan with Any Credit Along with a Happy Couple and a New Black SUV next to them

If you already know which car you are purchasing and at what price, then you can simply ask your local bank or credit union about their rates and auto loan terms.A woman in black was just approved for a auto loan for a private seller

If you do not know which car you will buy, we recommend that you get pre-approved for a private seller auto loan first. 

That way, you will be able to compare loans for the same amount from various lenders and see which one best fits your needs, in terms of interest rates, fees, etc..

Typically, lenders charge higher interest rates on used car auto loans since their future values are less predictable than new cars.

By getting pre-approved for a used car loan for a private seller, you can shop freely for vehicles and hold a strong position when negotiating. 

As soon as you find your dream car, you go to your lender and receive a check for the buyer. If you were not able to qualify for a pre-approval from your trusted bank or credit union, there is another option.

Option 2: Get a personal loan

 Using a personal loan to pay for a private party car purchase is a lot like getting an auto loan. Consumers can find personal loans ranging from $500 to $35,000.

Although getting a personal loan does require decent credit, it can be a great second option for those consumers who have been turned down by their local bank or credit union.

However, in most situations, experts agree that an auto loan is preferable to a personal loan when trying to find a private party auto loan with bad credit. This is because:

  • Auto loans are easier to qualify for than personal loans
  • Auto loans tend to offer lower interest rates
  • Auto loans have fewer fees and penalties attached to them

For instance, private party auto loans do not have any origination fees attached to them. Personal loans can have origination fees of 2-5% depending on the lender and other factors.

Option 3: Use a subprime auto lender

If you were denied a private party auto loan from a bank because of your credit, you will need to go through a “subprime lender”, a lender that works with consumers with bad credit scores.

Just as with any loan, an auto loan lender will perform a “hard credit check” prior to issuing you a private party auto loan.

Most subprime lenders will only finance purchases of new and used cars from established dealerships, not from private sellers. 

There can always be certain exceptions, so its best to speak to your local subprime lender firstCrediReady can help you find a lender that can work with your credit score to obtain a private party auto loan.

Get a Car Loan with Any Credit Along with a Happy Couple and a New Black SUV next to them

Your chances of approval may increase if you decide to purchase the car from an established dealership. This is because many dealerships have an in-house financing department which funds the auto loans themselves, meaning no bank or other third party is involved.

Option 3: Get a personal loan

Steps to take before getting a private party auto loan

Purchasing a car from a private seller is the smart thing to do, as you can save thousands of dealership markups.

If you are ready to get a car loan for a private party sale and have less than perfect credit, here are some steps you should take:

Check your credit report

Your odds of approval for an auto loan depend on your credit score and report. If you haven’t already, get a free copy of your credit report from the government mandated website www.annualcreditreport.com.

Check your credit report for any errors that could lead to a higher interest rate on your private party auto loan.

Get a Car Loan with Any Credit Along with a Happy Couple and a New Black SUV next to them

Your credit score and report are the most significant factors lenders consider when issuing a private party auto loan. Note that an auto lender will have their “own score” that they will give you based on the entries in your credit report.

Auto lenders specifically will put more weight into payment history and less weight on new credit, as an example.

Prepare your auto loan documents

Auto lenders will need to see that you are capable of repaying a loan. For this requirement, an auto lender will typically require a month’s worth of paystubs. If your employment is seasonal, explain this to the potential lender.

In order to verify you, the bank or lender will require that you provide 2 forms of identification. This can include a government-issued ID, passport, or birth certificate.

The bank will also ask for a copy of a utility bill in your name to prove residency.

Understand the costs of an auto loan

Financing a car from a private seller can save you thousands over a dealership. However, it also has some risk attached to it. First and foremost, the car is likely outside of the warranty period.

You will be required to pay for all repairs and maintenance expenses of the vehicle, unlike most leasing arrangements. You could explore the option of getting an extended auto warranty to cover additional expenses.

Budget for your auto loan

Taking on an auto loan for a private seller is an immense responsibility.

You will be required to make monthly payments on the car or face the threat of repossession and a damaged credit score. Lenders also charge higher interest rates on private seller car loans than new car loans.

This is due to the increased risk and unknown resale value of a used car.

Before you take out a loan, ask yourself if you can afford the payments, insurance, gas, and maintenance expense of a car. Although buying a car from a private party can offer significant savings, be sure that you can still afford to repay your loan.

Final Note

All in all, if you have bad credit and want to get an auto loan for a private seller purchase, you will need to find a subprime lender who can work within your budget and location.

CrediReady offers one of the largest databases that connects dealerships, lenders, and buyers in all credit situations.

Take a few moments to fill out our free and confidential loan search form online and we will match you with a dealership in your local area that can meet your auto financing needs.



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