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Auto loans are available through both car dealerships and private parties, though getting a loan through a private party may take a bit more legwork.While private party auto loans tend to have higher interest rates than their dealership counterparts, private party auto sales often occur at lower overall price tags, and the trade-off might be worth it for you. Here’s what you need to know about private party auto loans, including where you can find them, their typical rates and terms, and how you can apply for one.
Private Party Auto Loan Defined
A private party auto loan is when a bank or financial institution lends a car buyer money to purchase a used vehicle off the private market. A borrower might use a private party auto loan to buy a car from a person they found on Craigslist or from a friend who’s looking to sell their car.Like most vehicular loans, a private party car loan is generally a secured loan — and the collateral for this auto loan is the car you’re purchasing. That means if you default on your payments, the lender can repossess your car.Private party auto loans charge interest as an annual percentage rate, or APR, which can add up over the term, or length, of the loan. Loan terms may be anywhere from 12 to 84 months long.Keep in mind, though, that private party auto loans often come with higher interest rates than their dealership counterparts. These loans can also have eligibility limitations when it comes to the vehicles themselves — cars over a certain age or mileage may not qualify.
Where to Find a Private Party Auto Loan
Private party auto loans are available from a variety of financial institutions, including big, national banks as well as smaller regional credit unions and online lenders. Because you’ll need to seek out the loan on your own, rather than simply allowing the dealership to work with whichever institution it uses in-house, you’ll have the opportunity to shop around for the loan with the most competitive rates and terms. When shopping for an auto loan, lenders may require that you find the vehicle you want to buy before applying for a private sale auto loan.
Private Party Auto Loans vs Typical Auto Loans
The table below compares private party auto loans vs. typical auto loans:
Private Party Auto Loan
Typical Auto Loan
Provides borrowers with financing to buy a used car from a private seller
Provides borrowers with financing to buy a new or used car from a dealer
Borrowers may be required to find the car they want to buy before before applying for financing
Borrowers can get preapproved for financing before shopping for a new or used car
Financing may come from a bank, credit union, or nonbank financial institution
Financing may come from a bank, credit union, nonbank financial institution, or a dealership
Factors Affecting the Interest Rate of a Private Auto Loan
As with other loans, there are a variety of factors that can affect the interest rate of your private party loan, such as:
Your credit score
Your income and employment history
The age of the vehicle
The mileage of the vehicle
The length of the term
While private party auto loans do tend to have higher interest rates than the secured loans you’re likely to find at a dealership, they often have lower rates than personal loans, which are unsecured. So again, it’s all about weighing your options and deciding whether or not the option to finance a private-market vehicle is a worthy trade for you.Recommended: Guide to Getting a Low APR on a Car Loan
Pros and Cons of Private Party Auto Loans
Below, we highlight some of the pros and cons of getting a private sale auto loan:
Advantages of Private Party Auto Loans
They provide would-be car buyers with private sale auto loan financing
Lenders may require that you find the car you want to buy before applying for the private sale auto loan
Your interest rate may be higher than a typical auto loan
An auto loan for private seller purchases cannot be used to buy a new car from a dealer
The lender may not help you in the paperwork process of transferring the car title and registration into your name
How to Qualify for a Private Party Auto Loan
Like other loans, qualifying for a private party auto loan will depend on your financial factors, including your credit history, income, existing debts, and more. Lenders are trying to assess how much of a risk it is to put money into borrowers’ hands, and they use these indicators of past financial behavior in order to decide whether or not they think they’ll see the money back from you.As usual, when it comes to private party auto loans, the higher your credit score and the lower your existing debt, the more likely you are to qualify for a loan with a lower interest rate. If you want to improve your odds of approval or secure a more competitive rate, there are steps you can take. For example, you could ensure that going forward, you make all payments in full and on time, as payment history is the biggest determinant of your score. You could also work on paying off debt to lower your credit utilization.
How to Apply for Private Party Auto Loans
To apply for a private party auto loan, you’ll need to supply the lender with your basic demographic information, including your:
Name
Date of birth
Address
Social Security number
The application will likely also ask about your employment history and income, as well as any current debts you pay (including your mortgage or lease payment).Additionally, you’ll need some details about the car you’re interested in purchasing, too, including its:
Make and model
Year
Mileage
Vehicle identification number (VIN)
Depending on the lender, you may also be asked to provide:
The bill of sale or buyer’s order detailing the terms of the purchase agreement
A copy of the vehicle’s title and registration
Written payoff quote from the seller’s lender, if the car is still under lien on their side
Should You Use a Private Party Auto Loan to Refinance Your Car?
Along with purchasing a car in the first place, you might be interested in finding a new loan to refinance a car you’ve already purchased. Auto loan refinancing may be right for you if you can secure a lower interest rate.However, private party auto loans are specifically for private party sales and may not be helpful for those looking to refinance. Additionally, with their higher interest rates, they might not save you money in the long run — which is typically the main reason to refinance.
Are There Private Party Auto Loans for Bad Credit?
If you have bad credit, you may wonder, “Can I get a car loan for a private sale?” The answer is yes,, but these borrowers may not qualify for a lender’s best rate of interest.Deep subprime borrowers, for example, had an average auto loan rate of 21.57% on used vehicle financing in the first quarter of 2024 compared with 5.38% for superprime borrowers with excellent credit scores between 781 and 850, Experian data show. This shows that any particular credit score needed for used car loan financing can be any score between 300 and 850.Recommended: What Credit Score Is Needed to Buy a Car?
Alternatives to Private Party Auto Loans
Here are some alternatives to private sale auto loan financing that you may consider:
Indirect financing through a dealership
Borrowing money from friends or family to buy a car
Using a personal loan to buy a car
Buying the vehicle outright with cash
Getting a short-term car lease
The Takeaway
Private party auto loans make it possible to finance a vehicle purchased on the private market, but it’s important to understand that these loans do tend to have higher interest rates than their dealership counterparts. However, their interest rates are still usually lower than the rates on unsecured personal loans — so if you’re committed to buying on the private market, a private party auto loan may work for you.Refinancing might be the right option for you if you qualify for a lower APR than your existing car loan. Lantern by SoFi can help you compare auto refinancing offers in just minutes. Just fill out a short form and see whether you prequalify.Find and compare auto loan refinance options with Lantern.
Frequently Asked Questions
Do you have to take out a private party auto loan if you are buying from a private seller?
How are private party auto loans different from other auto loans?
How big can a private party auto loan be?
Can I get a car loan for a private sale?
Photo credit: iStock/krisanapong detraphiphat
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About the Author
Jamie Cattanach
Jamie Cattanach is a full-time freelance writer whose work has been featured at CNBC, Yahoo Finance, The Motley Fool, the Huffington Post and other outlets. At SoFi, she writes about investing, retirement, student loans and how to get your money right -- no matter what that means for you.
