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.

Most consumers do not have the resources to buy a car immediately in cash, leading them to turn to financial institutions for a private party auto loan.

How to Get an Auto Loan for a Private Seller Purchase

The best and most common method of getting a car loan for a private sale with bad credit is by speaking to your local credit union or trusted bank first.

Almost all banks can offer you an auto loan for a private seller. There are various websites where you can apply for a private party auto loan as well.

If you already know which car you are purchasing 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 and approvals.

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 private party auto loan, you can shop freely for vehicles without worrying about getting approved and losing the car of your dreams.

As soon as you find your dream car, you go to your lender and receive a check for the buyer. 

Car Loans for a Private Sale with Bad Credit

Sadly, getting a car loan for a private party sale with bad credit can be a little more challenging. Since it can be hard to track the “fair market value” of a used car at any given time, interest rates will be higher for a used car private party auto loan than a new car. 

Just as with any loan, most lenders will perform a “hard check” prior to issuing you an auto loan for a private seller. However, most “prime” lenders are reluctant to work with bad credit consumers when it comes to an auto loan for a private seller.

If you have bad credit and want to get a private party auto loan, you will need to go through a “subprime lender”, a lender that works with consumers with bad credit scores.

However, even most subprime lenders tend to work as indirect lenders alongside car dealerships, meaning there is no office to walk into. Instead, these lenders have agents throughout dealerships that work to match consumers with an auto loan best suited for them.

These “indirect” lenders rely on agents that work inside auto dealerships to help close auto loans. Sadly, this usually means that they do not finance auto loans for a private seller purchase.

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. 

Most lenders prefer to work in this arrangement for 2 massive reasons:

The Vehicle is Documented

There is a special relationship between the lenders and dealers, where the dealer guarantees that the car being financed is what the official paperwork says it is. This includes many variables like the vehicle age, mileage, options, and more.

The most important document, however, is the vehicle title. For a lender to provide financing, the title must be clean (not salvage, rebuilt, etc.).

The Borrower is Legitimate

Many dealerships heavily verify their vehicle buyers. You may be required to bring in 2 forms of identification along with proof of employment and even more. This information is then sent from the dealerships to the lenders.

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

Private Party Auto Loans for Bad Credit

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, 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

Check your credit report for any errors that could lead to a higher interest rate. Your credit score and report are the most significant factors lenders consider when issuing an auto loan for a private seller.

Note that an auto lender will have their “own score” that they will give you based on the entries in your credit report. Lenders 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 months 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 All of the Costs

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 Appropriately

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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