by Andrew Rohrlich
If you don't want to or cannot buy the car in cash, you'll need an unsecured personal loan or a private party auto loan to finance the purchase. The latter tends to be cheaper since the car becomes your collateral.
But before you get a loan, you should know about private party car loan interest rates, requirements, and other factors that will affect your decision. For example, which financial institutions give these loans? What kind of loan options are available? What if you have bad credit?
In this guide, we explain used car loan private party interest rates to help you find the best financing deal for your vehicle.
What Are Private Party Car Loans?
A private party car loan is a loan for buyers who purchase a car from an individual owner rather than a dealer. It's a secured loan, meaning the car is used as collateral against nonpayment.
Banks and other lenders offer private party auto loans, typically at higher interest rates than those they give to people buying from a dealer. The rates are higher because the lenders are taking on more risk when financing cars sold by private owners.
The loan repayment term of a private party auto loan is from 12 to 84 months, depending on the lender. The interest rate may also vary per your state of residence and credit.
What Factors Affect Your Interest Rate When Buying a Car Privately?
Before you apply for a private party auto loan, check if you're eligible. Lenders will have requirements surrounding your credit score and the age or condition of the car. But if your credit score allows you to get a private party car loan, here are some things that affect the interest rates.
Term Length
A longer repayment term may make it more convenient for you to repay the loan. But it's also riskier since there's a longer term, during which the interest rates can change significantly.
Since the lender has to take more risk, you get a higher interest rate. Meanwhile, loans with shorter repayment terms come with lower interest rates since the risk is reduced. But you'll have to pay higher monthly payments.
In the same way, a large down payment reduces your loan amount, which translates to lower interest rates. Lenders prefer borrowers who pay a large portion of the loan amount upfront, as that reduces their risk.
Credit Score and Credit History
The higher your credit score, the lower the interest rate you're likely to get. Bad credit reflects poorly on your ability to repay the loan. As a result, there's more risk for the lender, which they compensate for by charging a higher interest rate.
On the contrary, if you have an excellent credit score, you'll pay lower interest rates. But the lender will check the vehicle's condition and age before giving you a rate.
Vehicle Mileage
The vehicle's condition also plays a role in determining the interest rate. Cars with higher mileage have greater chances of reliability issues and have private party car loan interest rates.
The private party auto loan rates are lower for newer cars with lower mileage.
Do You Need the Vehicle Title Before Applying?
Besides basic information like your name, social security number, and bank details for automatic payments, the lender may need several documents too. One of them is the title.
You should have information regarding the car's title before you apply for a private party car loan. The title acts as proof of ownership and is a requirement to obtain the financing.
When you buy a vehicle in a private purchase, the owner should sign the title over to you. If there's any issue with the title, resolve it before applying for a loan.
The lender may need other documents, such as:
- Proof of income
- Proof of insurance
- Method of down payment
- Credit and banking history
- Proof of residence
- Vehicle registration
In some cases, it's also possible for the seller to sell their car with a loan. They'll have to ask their lender for the payoff amount and arrange for the title to be transferred. If you're buying such a car, ensure the seller has paid off the loan before the title transfer.
How To Find the Best Private Party Car Loan Interest Rates
Unlike shopping for personal loans, where a credit union or a bank may be the best option, finding the best private party car loan interest rates can be trickier. Getting competitive rates requires thorough research and comparison.
First off, you should know where to get the loan from. Some banks, like PNC Bank, LightStream, and Bank of America, offer private party car loans. If your bank doesn't provide them, opt for online lenders like myAutoloan and PenFed Credit Union.
Next, find the best rates. When comparing private-party loans, look at the following:
- Loan term
- Fees
- Penalties
- APR
The lender or bank you choose will likely have an online loan calculator that you can use to check how much interest you'll have to pay if you adjust the parameters. For example, longer repayment terms result in higher interest rates. On the flip side, a bigger down payment will lower your interest rate.
Everything You Need To Purchase Your Car Privately
Agreeing on a favorable purchase price is not enough in a private sale. You must also check the vehicle's history and ensure a safe transaction, especially if you buy from a marketplace like Craigslist or Facebook Marketplace. The vehicle identification number can tell you all you need to know about the car.
Next comes the financing. You'll need to shop around for private-party loans if cash is not an option. Find the best private party car loan interest rates by comparing different lenders. If possible, pay a higher down payment and choose a shorter repayment term. Doing so will lower the interest rates.
But if your credit score doesn't qualify for a private party loan, you can try to get a joint or cosigned loan. Whichever route you take, do proper research to find the lowest interest rates possible.
This article was written by Andrew Rohrlich. As a brand and product marketing expert, Andrew Rohrlich has crafted products, experiences and communications for household names like Gap and for multiple automotive technology businesses. For nearly a decade Andrew has studied automotive retail in depth from a customer point of view and aggregated the industry’s best research, thought leadership and know how to provide credible and important information to auto shoppers and sellers.
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