What is a private party auto loan and how do I find one? – Councilor Forbes


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When you want to finance your next car without going through a dealership, you’ll need a peer-to-peer auto loan. They may be more difficult to find than new or used car loans for dealer purchases, but it may be worth looking for, as buying a car from a private person can help you save money. money.

Not only do private sellers often charge less than dealers, but they also often have cars for sale that you won’t find at a dealership. A private party can be the best way to find the car you want at a comfortable price.

What is a private party auto loan?

A peer-to-peer auto loan allows you to borrow money to purchase a vehicle from a private seller, as opposed to a dealership. Here are a few reasons why you might want one:

  • The car you want is only available through a private party
  • Dealerships do not offer cars in your price range
  • The same car is often cheaper when you buy it from a private individual rather than a dealer

What Does a Private Auto Lender Do?

A private auto lender helps individuals buy used cars from each other. Not only do they provide financing, but they can also help the deal run smoothly.

For example, if the seller is still repaying their vehicle loan, the buyer’s private auto lender will request the seller’s lender’s statement showing the repayment amount and repayment authorization. Your private auto lender will then send funds directly to the lender to repay the loan so that title to the car can be transferred. They will also send the seller any proceeds beyond what is needed to repay the loan.

Some private lenders also handle the ownership transfer documents with the DMV so you don’t have to. But you will still need to know the history of the car before you buy it and find the best auto insurance as soon as possible.

How a private party auto loan works

Just like traditional auto loans, the vehicle you finance will secure the personal auto loan. While secured loans tend to have lower interest rates than unsecured loans, the lender can repossess your collateral (the car) if you are in arrears or default on payment.

Lenders offer 12 to 84 month terms on private auto loans. The longer the term of the loan, the more interest you will pay, but the more your monthly car loan will be reduced.

Tariffs and costs

Here are the factors that will affect your interest rate on a personal auto loan:

  • Your credit rating. The higher your credit score, the lower your rate.
  • The amount you are borrowing. Small loans sometimes have higher rates than larger loans.
  • The term of the loan. Shorter terms, like a 24 month auto loan, tend to have lower rates than longer terms, like 84 months.
  • The age of the vehicle. Newer vehicles tend to have lower rates than older ones.
  • The mileage of the vehicle. Cars with more miles may require higher rate loans.
  • The lender you choose. Shopping around will help you get the best deal.
  • Discount on automatic payment. Rates are often 0.25% to 0.50% lower for customers who allow automatic monthly drafts from their bank account to repay the loan.

How do I qualify for a private party auto loan?

Qualifying for a personal auto loan is like qualifying for an auto loan from a dealership. You will need good credit and sufficient income to cover your monthly payment. You might need a down payment, but many lenders offer 100% financing on used car loans. They can even finance more than 100% of the purchase price of the car to help cover taxes, property rights, and license fees.

The average credit score of a person buying a used car with an auto loan in the fourth quarter of 2020 was 671, according to Experian. You are unlikely to qualify for a car loan with a credit score of less than 500, but there are lenders that specialize in bad credit auto loans.

How to find a car loan for a private party?

When you buy a car from a dealership, they put you in touch with their preferred lender. Think Honda Financial Services, Toyota Financial Services, or Ford Credit. You can also provide your own financing from a bank, credit union, or online lender, and sometimes you’ll save money that way.

Personal auto loans also come from banks, credit unions, and online lenders. But they’re harder to find than a new or used car loan for a dealership purchase.

To help you get started, here are some financial institutions that are offering auto loans to individuals as of May 2021:

  • The big banks. PNC, Bank of America and Bank of the Regions
  • Credit unions. 1st, Credit Union West, Logix and First Credit Union members
  • Online lenders. LightStream and MyAutoLoan.com
  • community banks. These don’t always have the largest online presence, so check your area and make a few phone calls to see what’s available.

It also doesn’t hurt to check with a bank or credit union you already have a relationship with.

If the car you want to buy is too old, has too many miles, is not worth enough, is a utility vehicle, or has a salvage title, you may have a hard time finding a personal auto loan. A personal loan can provide funding in these situations. However, most personal loans are unsecured, which means that you can expect to pay a higher rate of interest than on a car loan, which is secured.

Here’s an example of how much you’ll pay for a typical 72-month loan.

Vs private party auto loan. Personal loan

Vs private party auto loan. Other auto loans

A private auto loan can have a higher interest rate than other auto loans. Here is a comparison showing how the total cost of your loan might compare to two options: a private car loan for a cheaper car and a car loan for a used car of the same make and model at the higher price. high from the dealership. For this example, we will rate a 2016 Honda Civic LX sedan with 50,000 miles.

If you create a simple spreadsheet comparing your actual offers and options, you will see which choices offer the best value for money. There are times when buying a new car is actually the way to go due to dealer sales and 0% financing. And, of course, you can also play around with the length of the loan to get a monthly payment and total finance charges that you can live with.

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