Personal auto loans are exactly what they sound like. You borrow against a vehicle that you own, not a brand-new car. Private car loans are popular with consumers who want to buy high-end cars or trucks but don’t have the cash to pay for them in full. A personal loan can be used to pay off an existing auto loan or finance a purchase outright, making them an excellent option for people who want flexibility with their finances and their vehicles.
The difference between private-party auto loans and other types of financing is their flexibility. Unlike traditional financing companies, private lenders will work with you to get your monthly payments down as low as possible. If you’re struggling with debt or feel like your current situation won’t allow for good budgeting practices, this may be the option for you. In addition, these kinds of loans offer better interest rates than many other forms of credit because they’re less risky, which means lower monthly payments overall.
What Is a Private Party Auto Loan?
A private-party auto loan is a personal loan used to purchase a vehicle from a private seller. A private-party auto loan can be offered by credit unions and banks, but it can also be offered by dealerships (which usually have higher interest rates). The lender will use the value of the car as collateral in order to secure your loan amount. Purchasing an automobile from a private owner may require you to pay more than what you would if buying from an official dealer because there are no warranties or other benefits associated with purchasing from someone who does not work for an automobile company.
Private auto loans are often used for those looking for specific cars that aren’t available at dealerships or may not have enough money saved up yet for those types of vehicles. That’s of course without taking out financing options like these first before making purchases themselves. So, it’s important to know how much each process costs before making decisions about which option works best for them financially speaking. Especially when considering all factors involved such as maintenance costs over time among other things besides just initial costs such as taxes etcetera.
How Do Private Party Auto Loans Work?
Applying for a private party car loan is simple. You’ll need to:
- Find a vehicle. This might seem obvious, but it’s important that you check with the seller before you apply for any kind of financing.
- Apply for a loan. After approval lenders pay the seller the amount you owe. Then with the added interest, you repay them over the term of the loan.
Lenders usually have some requirements for borrowers. The most common is a credit score, income, and upfront payment. Some of them may include the age limit of the car or mileage on the dashboard. So, in order to know beforehand what the requirements are, you can check online, call them or walk into their financial center to get the information you need.
Private Party Auto Loans vs. Regular Auto Loans: What’s the Difference?
Private party auto loans are a type of loan that is secured by your car. If you decide to take out an auto personal loan, you’re going to find someone who wants to lend you the money against the vehicle they can repossess if you default.
A regular auto loan is from an actual dealership. These types of loans are typically meant for newer cars (up to 10 years old). In most cases, these kinds of loans come with better interest rates than auto loan private parties do, because they are backed by the full faith and credit of the dealership.
There are multiple ways that you can get this kind of financing:
- Online lenders like Lending Club or Lending Tree offer personal loans for vehicles in good condition with low mileage at competitive rates. However, it’s wise not just assume because it’s online-based that there won’t be any issues. It may take some time but there will still be some paperwork involved so plan accordingly.
- Credit unions often offer lower interest rates on their consumer loans because they don’t have shareholders demanding high returns. But beware, they also tend not to have as many lending options available either.
Who Offers Private Party Auto Loans?
Private party auto loans, also called non-finance company auto loans, are available from banks and credit unions as well as online lenders. Private party lenders will typically ask you for your credit score, income, and assets. As well as debts, such as student loans or mortgages, the down payment that you plan to make on the vehicle (this is usually required), and let you know the minimum credit score requirement (most private lenders require a 620 FICO® Score). Some private lenders may also require at least three months of consistent employment history with your current employer or a letter from your employer stating that there is no reason to believe that you won’t be able to continue working there for at least six months after taking out the loan.
Here are some lenders who offer the best auto loan for a private party:
- MyAutoLoan- Offers amount from 8.000$ to 100.000$ with Apr 3.94 – 21.00 %. The minimum Credit score for their loan is 575.
- LightStream- Their offer is similar to the previous one in amount but, they require a 660 Credit score and Apr is 6.49 – 11.49 %.
- PenFed Credit Union- They also lend up to 100.000$ with APR 3.19 – 17.99%.
How to Qualify for Private Party Auto Loans?
The first thing you’ll need to do is prove that you can afford the car. You must be able to show that you have a stable job and a fair credit score, as well as a stable residence. The seller or lender will also want proof of income, documentation of your employment history, and references from people who know you well enough to vouch for your trustworthiness.
The lender may require other documents like tax returns and bank statements as well if they suspect something might not add up in terms of what they know about you versus what they see in front of them at this moment.
A good debt-to-income ratio requirement would be 23%. If you have no debt at all, then this number can go down significantly. Most private lenders will look at both your debt and income when determining whether or not they want to lend money based on an applicant’s DTI ratio – which basically means how much money goes towards paying down debt compared with how much goes toward paying other expenses like rent/mortgage payments, utilities, etc.
This number has been shown historically by studies conducted by both FICO® itself through its National Credit Bureau partners as well as third-party sources such as Experian who found out through their own research that what consumers should aim for when applying for financing is always try getting below 25%. This means if someone made $100 per paycheck, they would want less than $25 going towards paying off debts each month before being approved.
As with any type of auto loan, the lender wants some way to ensure that they won’t lose all of their money if something goes wrong with your finances after making this purchase. That could happen if a major illness prevents you from being able to work full-time anymore (like cancer).
If there is no collateral involved here then lenders will make sure they have some sort of guarantee before giving out any cash flow from their own pocketbook instead. This means verifying someone else’s assets (not necessarily theirs) against any potential losses incurred by defaulting on their agreement within contractual terms agreed upon beforehand by both parties involved that would be considered collateralization.
Alternatives to Private Party Auto Loans
There are alternatives to an auto loan for a private seller. In fact, you can get a car without taking out a loan at all. Here’s how:
- Get your own financing by putting down a deposit on the car and getting pre-approved for an auto loan at your bank or credit union. You will not have to worry about any paperwork or credit checks with this option. However, there may be some restrictions on what you can afford based on your income and debt load.
- Buy from an individual who has enough money in their savings account to pay off the balance of the loan in full (this isn’t always possible). The seller would then give you title authority over the vehicle so that it’s free from any liens or other encumbrances tied to it and then hopefully never see them again. If this sounds like something that could work for you but doesn’t want another person knowing about where your money came from, consider buying cars through crowdfunding sites like ReSellItNow which operate solely online with no one coming face-to-face during transactions unless both parties arrange beforehand through additional communication channels such as email or text messaging instead.
A private party auto loan is a good option for people with bad credit who are looking to refinance their current vehicle or buy another car. They’re also great for anyone who doesn’t want to work with a dealership and wants to buy from a private seller instead. If you don’t have collateral, these types of loans are an excellent way to get financing on your next vehicle purchase. And unlike regular auto loans from banks, there is no prepayment penalty. You can pay off your balance at any time without paying more in interest.
Private party auto loans are available at many local banks and credit unions across the country, as well as online lenders like LendingTree. These lenders offer competitive rates on their personal loans, which may be lower than what you would get from another financial institution offering similar products such as home mortgages or student loans. But they may also come with additional fees that must be considered before applying.